Updated as of July 22, 2020.
On April 14, 2020 the Los Angeles County Board of Supervisors (“Board”) amended its March 19, 2020 order that implemented an eviction moratorium with respect to both residential and commercial tenants and provided that if a tenant was unable to pay their rent current they could defer rental payments that were due during the period March 4, 2020 through May 31, 2020 for months. On May 12, 2020, the Board issued an order that, among other things, extended the moratorium period through June 30, 2020.
After previously extending the order through July 31, 2020, on July 21, 2020, the Board has once again extended the order through September 30, 2020. Additional extensions will continue to be reviewed and approved on a month-by-month basis by the Board going forward.
Coming on the heels of the Board’s prior extension on June 23, 2020, both the Board and the Los Angeles City Council approved a combined $133 million in federal CARES Act money to be spent on rental assistance to tenants during the COVID-19 crisis. The City’s program allocates $103 million (and up to $2,000 per household) to residential tenants who earn below 80% of the area’s median income. However, over 100,000 applicants signed up the day that the enrollment period opened on July 13, 2020, forcing the City to randomly select 50,000 families that will receive subsidies. The County’s program extends $30 million to residential tenants hit hard by COVID-19, but the program is not expected to launch until mid-August, 2020. The County’s program will exclude any units located within the City and will require applicants’ landlords approval. We will continue to monitor these relief programs and provide updates accordingly.
The Board’s April 14 amendment expanded coverage of the March 19 order to all cities in Los Angeles County that have not enacted their own eviction moratorium/rent deferment order and mobile home parks who rent space to mobile homeowners, in addition to the unincorporated areas of Los Angeles County that the March 19 order initially covered. Thus, cities within Los Angeles County who have enacted their own order, like the City of Los Angeles, do not fall under the Los Angeles County order.
The May 12 amendment, effective June 1, excludes commercial tenants that are multi-national, publicly traded or have more than 100 employees. Further, commercial tenants with between 10 and 100 employees will only have 6 months following the end of the moratorium period to repay any deferred rental payments, while residential tenants and commercial tenants with 9 or fewer employees will still have 12 months.
Los Angeles County’s order requires defaulting tenants to demonstrate an inability to pay rent and/or related charges due to “financial impacts” related to COVID-19 in order to not be evicted for nonpayment of rent. However, the May 12 amendments provide that both commercial tenants with 9 or fewer employees and residential tenants may “self-certify” their inability to pay as a result of “financial impacts,” and requires landlords to accept such self-certification. For these qualifying tenants, a self-certification notice issued by the County can be used to comply with this requirement and notify landlords.
For the commercial tenants covered by the County’s order but that do not qualify for self-certification, additional guidance was issued on June 3, 2020 regarding the type of documentation such tenants will be expected to provide to adequately demonstrate their inability to pay rent as a result of financial impacts due to COVID-19. This documentation includes: bank statements before and after the COVID-19 pandemic, gross sales receipts before and after the COVID-19 pandemic, evidence of increased expenses before and after the COVID-19 pandemic, and applicable federal, state, and local health officer orders which demonstrate restrictions on business activity applicable to the tenant. These are only guidelines as to what should be provided, and it will ultimately be up to a court to determine if adequate information was provided to demonstrate an inability to pay rent. Further, the fact that a business is “essential” under a federal, state, or local public health order or continues to operate during the moratorium period shall not, in and of itself, prevent a commercial tenant from establishing a financial impact related to COVID-19. Regardless of whether this demonstration must be made or if self-certification applies, both residential and commercial tenants must still provide notice to their landlords of their inability to pay within 7 days of the due date.
“Financial impacts” include “substantial loss of household income due to business closure, loss of compensable hours of work or wages, layoffs, or extraordinary out-of-pocket medical expenses” that are “related to COVID-19” (i.e. if it is a result of any of the following: (1) a suspected or confirmed case of COVID-19, or caring for a household or family member who has a suspected or confirmed case of COVID-19; (2) layoff, loss of hours, or other income reduction resulting from business closure or other economic or employer impacts of COVID-19; (3) compliance with a recommendation from the County’s Health Officer to stay home, self-quarantine, or avoid congregating with others during the state of emergency; (4) extraordinary out-of-pocket medical expenses related to diagnosis and testing for and/or treatment of COVID-19; or (5) child care needs arising from school closures related to COVID-19). Los Angeles County’s order as amended also prohibits both residential and commercial evictions based on the presence of unauthorized occupants, pets, or nuisance necessitated by or related to COVID-19.
It is worth reiterating that if a city within Los Angeles County has enacted its own order, then that order would apply over Los Angeles County’s. It is thus crucial for landlords and tenants alike to familiarize themselves with any local city order applicable to their location, as the vast majority of cities both inside and outside of Los Angeles County, as well as other counties themselves, do not allow for similar “self-certification,” and instead require a defaulting tenant to “demonstrate” or “show” an inability to pay rent due to COVID-19. When such demonstration or showing is required, tenants should be prepared to provide some form of supporting documentation, along the lines of the type of documentation set forth above. Certainly, if the landlord insists on documentation of inability to pay rent, it would behoove both landlords and tenants to discuss the type of supporting documentation to be provided.
In sum, municipal eviction moratorium/rent deferment orders may differ from Los Angeles County’s order by: (a) excluding commercial tenants, or certain commercial tenants, from protection; (b) providing alternative timeframes for notifying landlords of an inability to pay or for making deferred rent payments once the applicable order or the COVID-19 emergency period expires; and (c) requiring a demonstration or showing of an inability to pay because of COVID-19.
For instance, while the City of Los Angeles’ eviction moratorium/rent deferment order (currently effective through June 30) also limits the type of commercial tenants that are protected and, like the County order, does not allow landlords to apply late fees or interest to properly deferred rental payments, it: (a) does not extend protections to commercial tenants that are publicly traded companies, transnational companies, or companies with over 500 employees; (b) only grants defaulting commercial tenants a 3 month time period after the emergency period to make up deferred payments (defaulting residential tenants have a 12 month time period); and (c) does not explicitly require defaulting tenants to “show” an inability to pay rent for reasons related to COVID-19; however, while residential tenants may use a simple notice form to landlords that suggests they may self-certify their inability to pay, whether and to what degree commercial tenants will need to substantiate an inability to pay because of COVID-19 under this order remains unclear.
In light of the foregoing, all landlords and tenants should immediately:
(Updated as of May 20, 2020)
On May 8, 2020, California’s stay-at-home order was modified to reflect the state’s entering Stage 2 of its COVID-19 pandemic response, where businesses in the retail, manufacturing, and logistics industries can reopen, subject to certain restrictions (e.g., delivery and curbside pickup only). Earlier this week, Governor Gavin Newsom also hinted that entering Stage 3 “may not even be a month away.” Below are some questions and answers for issues that may arise as businesses reopen.
In California, workers’ compensation benefits are the exclusive remedy for injuries that a worker sustains from a condition of their employment. Some states’ workers’ compensation statutes exclude coverage for “non-occupational diseases” or “ordinary diseases of life,” such as a cold or flu, which may arguably encompass COVID-19. However, California’s Labor & Workforce Development Agency (“LWDA”) has clarified that workers are eligible for workers’ compensation benefits for injuries resulting from COVID-19.
However, generally speaking it is the worker’s burden to show that they were exposed to and contracted COVID-19 during their regular course of work. This showing will ultimately depend on the unique circumstances of each claim, including, for example, whether there were any known cases of COVID-19 infections at their workplace, whether the premises were contaminated with the virus, and whether the employer implemented safety and social distancing provisions.
On May 6, 2020, Governor Newsom changed the forgoing general presumption and issued an executive order that creates a rebuttable presumption for a period of 60 days (May 6 - July 5) that may entitle workers who work outside their homes to workers’ compensation benefits if they contract the coronavirus. The California State Insurance Fund (“State fund”) currently estimates that the added benefits from the Governor’s recent executive order will require approximately $115 million in funds.
Under the recent executive order, it will be presumed that the worker contracted COVID-19 during their regular course of work if (1) the employee tested positive with COVID-19 within 14 days after working at their place of employment; (2) the last day must have been on or after March 19, 2020; (3) the worker’s place of employment is not their home; and (4) the worker’s diagnosis of COVID-19 must be by a licensed physician and the diagnosis must be confirmed with further testing within 30 days of the diagnosis.
It will be up to the employer to establish that the worker did not contract COVID-19 at work by producing evidence that the injured worker did not satisfy one of the above four criteria or that the injured worker contracted the virus by another cause. The employer must produce such evidence within 30 days of the filing of the claim by the worker. After 30 days, an employer can produce evidence to rebut the presumption with evidence discovered after the 30-day period.
Overcoming the presumption will likely be difficult given the many variables in tracing how and where a worker has been exposed to the virus and obtaining evidence to disprove the worker’s claim. Further, employers and insurers will likely challenge the executive order due to the difficulty of proving that the employee contracted the coronavirus elsewhere. How is the employer supposed to establish this? Can the employer demand to know everyone the employee came into contact with outside of work and if those people were contagious? Can the employer go even further and inquire where the employee has been? And on and on down the line In short, there are a myriad of open issues and no guidance as of yet.
In California, workers compensation and unemployment compensation are typically only available to employees. However, workers who believe they were misclassified under recently enacted AB-5, and applicable case law, may be eligible for both of these benefits. To learn more about misclassification under AB-5, check out “The Evolution of the California Independent Contractor.”
Additionally, independent contractors who have voluntarily contributed to unemployment insurance Elective Coverage and made the required contributions or had a past employer contribute to the unemployment insurance fund on their behalf in the past 18 months, may also qualify for unemployment compensation. Further, the Pandemic Unemployment Assistance (“PUA”) program of the CARES Act gives states the unprecedented option of extending unemployment compensation to independent contractors and other workers who are ordinarily ineligible. On April 28, 2020, California’s Employment Development Department (“EDD”) followed suit and expanded the availability of unemployment compensation via the federal PUA program to business owners, self-employed individuals, independent contractors, and gig economy workers.
Workers who opt not to return to their positions when their employers reopen amid the COVID-19 pandemic will likely not remain eligible for unemployment compensation. Generally, individuals receiving regular unemployment compensation must act upon any referral to, and accept any offer of, suitable employment. A request that a furloughed employee return to his or her job very likely constitutes an offer of suitable employment.
Specifically, the U.S. Department of Labor outlines the conditions an individual has to meet to refuse to return to work in order to remain eligible for PUA, as provided by the CARES Act. The list includes (i) a COVID-19 diagnosis, restrictions due to childcare availability, (ii) caring for an ill family member, or (iii) health “complications that render the individual objectively unable to perform his or her essential job functions, with or without a reasonable accommodation” as a result of having recovered from COVID-19. However, voluntarily deciding to not return to work out of a general concern about exposure to COVID-19 is likely tantamount to the employee having quit and will likely eliminate PUA eligibility.
The EDD similarly requires applicants to be “able, available, and actively seeking work” to collect unemployment benefits. Accordingly, a worker’s decision to not return to work out of general health concerns related to COVID-19 would likely not satisfy this requirement. If, however, a worker declines to return given their underlying health conditions and thus an increased chance of significant illness if exposed to COVID-19, then the worker may be entitled to maintain unemployment compensation subject to the EDD’s discretion.
What if an employer offers a temporarily furloughed employee who is receiving unemployment compensation an otherwise similar role that provides, for example, hourly wages instead of the employee’s previous salaried compensation? Will this be considered “suitable work,” and would the adjusted compensation create “good cause” to refuse this position”? More generally, if the employer changes the terms of the employment – at what point does it constitute good cause to voluntarily quit and be eligible for unemployment compensation?
Whether an employee has good cause to not return to work or quit and be eligible for unemployment compensation is determined on a case-by-case basis and the burden of proving eligibility is on the claimant. The EDD provides the following framework in determining whether good cause exists for the claimant to have voluntarily quit and remain eligible for unemployment compensation:
“Once the claimant's reasons for leaving are determined, the interviewer must apply a three-part test to determine the presence of ‘good cause’: (1) Is the reason for leaving ‘real, substantial, and compelling’? (2) Would that reason cause a ‘reasonable person,’ genuinely desirous of working, to leave work under the same circumstances? (3) Did the claimant fail to attempt to preserve the employment relationship, thereby negating any ‘good cause’ he/she might have had in leaving?... ‘Compelling,’ in this sense merely means that the claimant's reasons for quitting exerted so much pressure that it would have been unreasonable to expect him or her to remain with the employment. The ‘pressures’ exerted upon the claimant may be physical (as with health), moral, legal, domestic, economic, etc.”
A relatively insignificant reduction in salary due to a worker’s being reassigned to a different hourly role has been found to not constitute good cause to terminate voluntarily. In one case, for example, a California court found that a reduction in the employee's wages by roughly 7% did not, by itself, constitute good cause for voluntarily leaving employment. However, the California Supreme Court has held that a 25% wage cut constituted a “substantial reduction in earnings” and that reduction was regarded as good cause for leaving employment.
Also uncertain is what happens in the situation where a salaried employee is offered an hourly position with no guarantee of actual work. This would likely serve to support a claimant’s argument that good cause exists to reject the offer of employment and remain eligible for unemployment compensation. Moreover, in some situations, an employee may be deemed to be partially unemployed and thereby entitled to partial unemployment compensation. Thus, hourly employees with reduced workloads may still receive partial unemployment compensation to supplement lost hours. Each of these situations must be evaluated on a case by case basis.
If a worker believes their employer has not adequately addressed COVID-19-related concerns, other limited remedies are available. Per California’s Department of Industrial Relations, employees deemed non-essential who believe they were terminated or otherwise retaliated against for refusing to go to work while the stay-at-home order is in effect may file a retaliation claim with the Labor Commissioner’s Office. Similarly, essential workers who feel their employer has not taken steps to ensure a safe work environment may also file a claim with the Labor Commissioner. These claims can lead to damages and penalties against the employer if it is found to have treated an employee adversely or fired an employee for refusing to work in (or complaining of) an unsafe work situation.
Under the federal Occupational Safety and Health Act, enforced through the Occupation Safety and Health Administration (“OSHA”), employees can refuse to work if they reasonably believe they are in imminent danger, which means they must have a reasonable belief that there is a threat of death or serious physical harm likely to occur immediately or within a short period. In the context of COVID-19, this will likely require a specific fear of infection that is based on fact—not just a generalized fear of contracting COVID-19 infection in the workplace, and that the employer cannot address the employee’s specific fear in a manner designed to ensure a safe working environment.
California’s counterpart to OSHA(“Cal/OSHA”), requires every employer to develop and implement a written safety and health program tailored to the specific workplace. Among other things, recent Cal/OSHA guidance mandates that all California employers must determine if COVID-19 infection is a hazard in their workplace, and if it is, implement prevention measures and training. Workers can file confidential complaints with OSHA or Cal/OSHA if they believe their employer is non-compliant, which could lead to on-site investigations, various civil penalties, and/or special orders requiring employers make changes to their workplace.
U.S. Senate Majority Leader Mitch McConnell has stated that any additional federal aid bill for state and local governments should make the money contingent on states providing liability protection to businesses and hospitals providing services amid the COVID-19 pandemic. Indeed, on May 12, Senator McConnell stated that he is overseeing the drafting of legislation that would “create a legal safe harbor for businesses, nonprofits, governments and workers and schools who are following public health guidelines to the best of their ability.” However, he was clear that the bill would not provide absolute immunity, and that “there will be accountability for actual gross negligence and intentional misconduct.”
The U.S. Chamber of Commerce has also made several suggestions on this topic, including safe harbors from: privacy laws for employers who inquire about health status, age and disability bias laws if companies follow guidelines regarding at-risk employees, and simple negligence claims for COVID-19 exposure if businesses follow government health guidance. Manufacturers have also suggested (i) raising the legal standard for plaintiffs’ claims that a business failed to protect them from COVID-19, (ii) giving additional protections to businesses making new products to address the COVID-19 crisis, and (iii) shielding businesses from privacy suits if they reveal a worker’s COVID-19 diagnosis for safety reasons. Currently, the extent to which any liability protections will be extended remains unclear.
Businesses must consider the extent and manner in which they will reopen. As best practice, and in compliance with Cal/OSHA requirements, businesses should establish safety protocols, update employee and company handbooks to reflect the safety protocols (and provide handbooks to workers), and enforce compliance with the protocols. The State Fund has established the Essential Business Support Fund and the Returning California to Work COVID-19 Safety Protocol Fund, both of which provide $50 million in grants on a first-come, first-serve basis. State Fund policyholders operating an essential business can apply for a grant to help with safety-related expenses, including reimbursement for costs for goggles, masks, gloves, cleaning supplies and services, and worksite modifications. Each grant can total up to the lesser of $10,000 or twice the amount of the businesses’ premium. The State Fund will make applications for the Returning California to Work COVID-19 Safety Protocol Fund available after statewide stay-at-home restrictions are lifted.
Businesses can also turn to the California Department of Public Health (“CDPH”) for guidance on how to reopen their businesses and provide a safe working environment for their workers. While business can use effective alternative or innovative methods to provide a safe work environment, such as implementing guidance from the Centers for Disease Control and Prevention, the CDPH guidelines are helpful as they are industry specific and cover employee training, cleaning and disinfecting protocols, physical distancing guidelines, and a big-picture plan for creating and implementing the safety protocols.
Important and recommended practices include establishing policies and practices for maintaining a healthy work environment and social distancing. Employers can maintain a healthy work environment by, for example, providing and mandating use of personal protective equipment, such as masks and gloves, regularly sanitizing high-frequency touched surfaces, providing napkins and hand sanitizers to employees, limiting access to common areas such as break rooms and kitchens, increasing ventilation and outdoor air circulation, and requiring employees to report travel outside the state.
Social distancing means avoiding large gatherings and maintaining 6 feet distance from others when possible. Social distancing protocols can include providing flexible worksites (e.g., telework) and work hours (e.g., staggered shifts), increasing physical space among employees and between employees and customers at the worksite, implementing flexible meeting and travel options (e.g., postpone non-essential meetings or events, use video conferencing, etc.), and providing alternative delivery methods, including curbside pick-up for products and utilizing phone, video, or web for services.
We will continue to closely monitor developments regarding these matters. You can view prior alerts and additional guidance regarding COVID-19-related matters at our resource center.
For more information on these matters, please contact our COVID-19 Task Force at or one of our attorneys at SA&M.
Authors:
Jeffrey Gersh
Karine Akopchikyan
Garett Hill
This workshop on California Worker Classification Law covered the following topics:
(1) why proper worker (i.e. employee (W2) v. independent contractor (1099)) classification is important, including the penalties/liability for improperly classifying;
(2) the evolution of the operative test in CA for classifying workers and Dynamex;
(3) AB5, the numerous exemptions of the bill, and pending litigation and legislative challenges to the bill; and
(4) a brief outlook of considerations for employers moving forward.
If you did not have a chance to attend, the entire webinar can be found here: California Worker Classification Law
Presented by:
Garett Hill Garett Hill is an Associate of the Firm. His practice focuses on all stages of business litigation.
Prior to joining the firm, Garett was a certified law clerk with the Re-Entry Clinic at Loyola Law School where he successfully represented Los Angeles residents seeking to expunge or seal their prior convictions or trying to obtain or restore a license that had been negatively impacted by prior convictions. Garett completed the Corporate Law Concentration at Loyola Law School where he excelled learning within the various substantive areas of business law. Additionally, Garett worked as a legal intern in-house at AECOM, where he primarily focused on corporate governance and construction law matters. He also worked as a law clerk at Girardi & Keese where he gained invaluable exposure to high-volume litigation.
Jeffrey Gersh
Jeffrey F. Gersh is a Partner of the Firm. Before joining Stubbs Alderton & Markiles, LLP, Jeffrey was Managing Partner of The Gersh Law Firm, Inc. for over 10 years and a partner for 25 years with a prominent litigation law firm. Jeffrey has been named a Thomson Reuters “Super Lawyer” for more than 8 years by his peers; an honor only achieved by less than 2.5% of attorneys in California.
Jeffrey successfully litigates, arbitrates, or mediates for both plaintiffs and defendants complex business and commercial matters, whether for individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners. Jeffrey successfully handles disputes regarding contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Jeffrey approaches his litigation practice from a business perspective, rather than purely transactional. In addition to representing his clients in litigation and dispute resolution matters, Jeffrey handles many of their various transactional matters relating to general business, trademarks, trade dress, copyrights and other intellectual property matters, trade secret matters, and employment matters to name a few.
Stubbs Alderton & Markiles' attorneys were featured this week in Law360 for their article entitled "The Fight For Clarity On Calif. Worker Classification Law". The featured article can be viewed on their website.
------
Since taking effect on Jan. 1, A.B. 5 has received its share of criticism and legal challenges. While the law may be well-intentioned, opponents claim it goes too far and restricts workers’ abilities to earn a living.
Steep penalties can result from noncompliance. As a result, many businesses are frustrated by the lack of guidance on how to appropriately conform to A.B. 5, especially considering the high number of exemptions and the potential for more to come.
Even for exempted professions, like freelance writers and photographers and fine artists, certain requirements must be met for said exemptions to apply. Rather than risking penalization for failing to properly conform or increasing their own costs to convert workers to employees, some businesses have opted to outsource work out of state.
These sentiments, among others, have necessitated a growing number of challenges to A.B. 5 in both California state and federal courts and the state’s Legislature. In light of these challenges, discussed in more detail below, California appears to be headed toward a series of much-needed judicial interpretations and legislative wrangling whereby the precise parameters of A.B. 5 will hopefully be clarified.
Generally, these challenges appear to signal a gradual erosion of the text of A.B. 5 as passed (i.e., more exemptions) and clear(er) guidance on how courts will interpret workers’ or public enforcement claims.
Specifically, a few of the currently unanswerable questions that will hopefully become clearer through 2020 include, but are in no way limited to:
• For purposes of qualifying under the professional services exemption, what does it mean to be "customarily engaged in the same type of work … with another hiring entity"?
• Relatedly, what exactly qualifies as a "fine artist" or "graphic design" worker?
• To apply under the business-to-business exemption, how must the hiring business demonstrate that the contracting business is free from its "control and direction"?
• Relatedly, will that phrase be interpreted the same as when applied to the referral agency exemption?
Below are brief summaries of a few of the most significant pending lawsuits challenging A.B. 5 enforcement.
Olson v. California
Two independent workers who used the Postmates and Uber applications to earn a living have filed suit in the U.S. District Court for the Central District of California claiming that A.B. 5 violates the California and U.S. Constitutions.[1] Postmates Inc. and Uber Technologies Inc. joined in the action as well.
They argue that there is no rational basis for determining the numerous professions that the bill exempts from applying the strict ABC test established by the California Supreme Court's 2018 decision in Dynamex Operations West Inc. v. Superior Court of Los Angeles County, thereby violating the equal protection clauses of the California and U.S. Constitutions. On Feb. 10, the court denied the plaintiff s’ request to halt A.B. 5’s enforcement, citing the state’s need to police misclassification as outweighing any harm to the companies and allowing the case to proceed to a determination on the merits.
California Trucking Association v. Becerra
The California Trucking Association has challenged A.B. 5 on preemption grounds in another lawsuit filed in the U.S. District Court for the Southern District of California, asserting it is inconsistent with the Federal Aviation Administration Authorization Act.[2] The suit gained steam on Jan. 16, when the court extended a previously granted temporary injunction that bars enforcement of the law on the trucking industry.
Separately, in an identical case brought by the California Trucking Association in Los Angeles Superior Court, the court there held that A.B. 5 is indeed preempted by the FAAAA on Jan. 8.[3]
American Society of Journalists and Authors Inc. v. Becerra
Freelance journalists have also challenged A.B. 5 in the U.S. District Court the Central District of California, arguing that their exemption, which allows for no more than 35 submissions per year in order to remain governed by the more flexible Borello test, violates the First Amendment.[4] In that case, the court denied injunctive relief in early January.
Proposed Legislation
While these litigation proceedings, and many others, are still working their way through the courts, California legislators have wasted no time introducing bills to upend the effects of A.B. 5. The following proposed bills, if passed, would take effect Jan. 1, 2021:
• S.B. 868 seeks to eliminate the 35-submission cap for freelance journalists and photographers, allowing all in the profession to remain independent contractors pursuant to satisfying the far less stringent Borello test regardless of how many pieces of content a freelance journalist submits to a given employer within a year.
• S.B. 867 seeks to make permanent the temporary exemption that A.B. 5 extends to newspaper distributors and carriers, which currently lasts until Jan. 1, 2021.
• S.B. 875 seeks to exempt interpreters, translators and court reporters, allowing them to remain independent contractors pursuant to passing the Borello test.
• S.B. 881 seeks to exempt persons providing services as a musician and music industry professionals, except where a collective bargaining agreement applies, also allowing them to remain independent contractors pursuant to passing the Borello test.
• A.B. 1925 would exempt small businesses, defined as independently owned and operated businesses with fewer than 100 employees and average gross receipts of $15 million or less over the previous three years, pursuant to their satisfying Borello.
• A.B. 1928 would overturn A.B. 5 in its entirety. Unlike the bills discussed above, A.B. 1928 would take immediate effect upon its passage. Specifically, A.B. 1928 seeks to reinstate Borello as the generally applicable standard for separating employees from independent contractors. However, A.B. 1928 would not nullify the Dynamex decision wherein the California Supreme Court held that the ABC test applies to claims brought under California wage order laws.
Lastly, Uber Technologies, Lyf t Inc. and DoorDash Inc. are the primary funders behind the Protect App-Based Drivers & Services Act, an initiative currently gathering signatures in order to make its way onto the November 2020 California ballot. If successful, this act would classify app-based ride-share and delivery drivers as independent contractors for all purposes, subject to meeting certain flexibility-based requirements, in exchange for minimum wage, health care, anti-discrimination, and insurance-based protections.
For now, companies should consider at least the following to ensure compliance with this new framework:
1. A.B. 5 and the ABC test presume that anyone performing a service is an employee; therefore, it is imperative to evaluate how workers are classified. Misclassification can be costly. Unless there is a recognized exemption, independent contractor status is very difficult.
2. If you are concerned that someone has been misclassified, determine what action needs to be taken to avoid being penalized. This can include reclassifying an independent contractor as an employee and providing, among other things, compensation for missed meal breaks, overtime pay, and any tax obligations or contributions to unemployment insurance.
3. The Dynamex decision could be given retroactive effect by the California Supreme Court this year, which would result in the ABC test’s application to wage order law claims going back four years. Even if Dynamex is not determined to be retroactive, the ABC test would still apply to these claims going back to the date of the Dynamex decision in April 2018. The impact that this retroactivity decision will have on A.B. 5 enforcement, which explicitly states it is not retroactive aside from applying for exemptions, remains unclear. Accordingly, classification practices over the previous four years should be evaluated to determine potential liability.
4. Review your situation if you currently or historically have classified, someone, as an independent contractor and paid them accordingly.[5]
-------------------
Jeffrey F. Gersh is a Partner of the firm. Before joining Stubbs Alderton & Markiles, LLP, Jeffrey was Managing Partner of the Gersh Law firm, Inc. for over 10 years and a partner for 25 years with a major national litigation law firm. Jeffrey has been named a Thomson Reuters “Super Lawyer” for more than 7 years by his peers; an honor only achieved by less than 2.5% of attorneys in California.
Jeffrey successfully litigates, arbitrates, or mediates for both plaintiffs and defendants complex business and commercial matters, whether for individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners. Jeffrey successfully handles disputes regarding contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Jeffrey approaches his litigation practice from a business perspective, rather than purely transactional. In addition to representing his clients in litigation and dispute resolution matters, Jeffrey handles many of their various transactional matters relating to general business, trademarks, trade dress, copyrights and other intellectual property matters, trade secret matters, and employment matters to name a few.
Jeffrey has been directly involved in litigation and business matters for clients not only in California, but also in New York, Nevada, Texas, Arizona, London, Australia, and Estonia and other places. He litigates cases from inception through trial and in some cases appeal, directly responsible for all aspects of the prosecution, defense, and resolution of his client’s complicated and sophisticated matters in both state and federal courts. As a result of his commitment to his client’s needs, he has enjoyed long-standing client relationships.
Garett Hill is an Associate of the Firm. His practice focuses on all stages of business litigation.
Prior to joining the firm, Garett was a certified law clerk with the Re-Entry Clinic at Loyola Law School where he successfully represented Los Angeles residents seeking to expunge or seal their prior convictions or trying to obtain or restore a license that had been negatively impacted by prior convictions. Garett completed the Corporate Law Concentration at Loyola Law School where he excelled learning within the various substantive areas of business law. Additionally, Garett worked as a legal intern in-house at AECOM, where he primarily focused on corporate governance and construction law matters. He also worked as a law clerk at Girardi & Keese where he gained invaluable exposure to high-volume litigation.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Olson v. California, 2:19-CV10956 (C.D. Cal., filed December 30, 2019).
[2] California Trucking Association v. Becerra, 3:18-CV02458 (S.D. Cal., filed Oct. 25, 2018).
[3] The People of the State of California v. Cal Cartage Transp. Express, Cal. Super. Ct. No. BC689320, order 1/8/20.
[4] American Society of Journalists and Authors, Inc. v. Becerra, 2:19-CV10645 (C.D. Cal., filed December 17, 2019).
[5] This article is not intended to be a complete recitation of the law regarding the Dynamex decision or the impacts of A.B. 5. Each business has its own unique issues and circumstances that need to be separately evaluated by an attorney
Businesses operating in California need to be very careful when classifying someone as an independent contractor vs. an employee. Given the California Supreme Court’s ruling in Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903 (2018) (“Dynamex”), and now the legislatures passing Assembly Bill 5 (“AB5”) which codifies Dynamex, the independent contractor in certain industries is essentially dead.
California’s Wage Order laws, found within the California Labor Code, demonstrate the importance of proper worker classification. These laws provide minimum-wage, overtime-pay, paid time off, and various other working condition-related protections to “employees” in a given industry and impose certain tax and insurance payment obligations on an employer. A true independent contractor is not afforded these same protections. Failure to properly classify workers can carry severe consequences that include a company’s liability for unpaid wages and other benefits due (plus interest), civil penalties, criminal sanctions, attorneys’ fees, and the potential for class-action litigation. The Private Attorneys General Act (“PAGA”) also provides a cause of action for misclassified workers wherein enforcement actions are brought on behalf of the state,[1] and AB5 will allow city attorneys in California cities with populations over 750,000 to pursue injunctive relief to prevent misclassification. Compliance with the new categorization framework is thus key to avoiding these pitfalls.
In April 2018, Dynamex effectively replaced the long-standing test for categorizing independent contractors and employees with respect to claims brought under the Wage Order laws, which was set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) (“Borello”). The Borello court utilized a “control-of-details” test that requires workers to demonstrate an adequate degree of control that the employer asserts or could assert over all aspects of a worker’s performance. The Borello test considers a long list of factors to determine if someone is properly classified as an independent contractor vs. an employee, including, but in no way limited to, the degree of discretion a worker has in completing tasks, the difficulty of the work performed, where the work is performed, and whether the worker provided his/her own supplies. Ultimately, the California Supreme Court recognized a need for a clearer framework that would better protect workers.
Dynamex established the “ABC test,” which starts with the presumption that all workers are employees and shifts the burden to employers when classifying someone as an independent contractor to prove each of the following three prongs: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. Prong B of the Dynamex ABC test is by far the most controversial. For example, gig-economy companies like Uber and Lyft largely classify their drivers as independent contractors. Despite Uber’s assertion that its drivers can pass the Dynamex ABC test because its usual course of business is a “technology platform for several different types of digital marketplaces,” the success of this argument if raised in court is highly questionable.
On September 10, 2019, the California Senate joined the State Assembly in approving the codification of the Dynamex ABC test via AB5. On September 18, 2019, Governor Newsom signed the bill into law; AB5 will now take effect on January 1, 2020. Notably, while Dynamex limited the application of its ABC test to claims brought under the Wage Order laws, AB5 will expand the Dynamex ABC test’s application to all claims brought under the Labor Code, including those related to workers compensation.
California’s Wage Order laws already exempt various employees from the entirety of those provisions, including, but not limited to, licensed lawyers, doctors, architects, engineers and accountants. However, AB5 builds upon these exemptions by listing professions that will be exempt from the Dynamex ABC test and subject to Borello beginning in 2020 for all claims brought under the Labor Code, without affecting those exempt professions under the Wage Order laws. Accordingly, professions exempt under both the Wage Order laws and AB5, such as those listed above, will remain exempt to Wage Order claims and subject to Borello for all other claims brought under the Labor Code. Professions not exempt under the Wage Order laws but exempt under AB5, like barbers, will be subject to Borello for all claims brought under the Labor Code, including Wage Order claims. Professions exempt under the Wage Order laws but not exempt under AB5, like teachers, will remain exempt from Wage Order law claims but subject to the Dynamex ABC test for all other claims brought under the Labor Code. Finally, professions not exempt by either the Wage Order laws or AB5, like those in the gig-economy, will be subject to the Dynamex ABC test for all claims brought under the Labor Code.
Exempted professions under AB5 include:
Notably, gig-economy company workers have not been granted an exemption and industry giants will continue to lobby the legislature until AB5 takes effect. Indeed, both Uber and Lyft, along with DoorDash, have pledged $30 million each to support a ballot measure that would exempt the industry from AB5.
Dynamex did not address whether its ABC test applies retroactively, (i.e., to claims filed after Dynamex was decided but with respect to activity that occurred prior to the decision). In May 2019, the Dynamex ABC test was briefly given retroactive effect by the Ninth Circuit in Vazquez v. Jan-Pro Franchising International, Inc., 923 F. 3d 575 (9th Cir. 2019) (“Vazquez”). However, on July 22, 2019, California businesses breathed a collective sigh of relief when the Ninth Circuit withdrew its opinion in Vazquez and sought certification on the issue by the California Supreme Court. Meanwhile, AB5 provides that it will only apply to work performed on or after January 1, 2020, with the exception for any “existing claims and actions” wherein the retroactive application of AB5 would relieve an employer from liability “to the maximum extent permitted by law” (i.e. Wage Order law claims brought by individuals in professions exempted under AB5 that were not previously exempted, such as barbers). It is unclear from AB5’s text whether this exception will only apply to claims that have already been filed, or those that may have arisen but have not yet been filed. It is also unclear what "the maximum extent permitted by law" means in this specific context.
In sum, businesses operating in California that hire independent contractors, particularly those that hire in professions not exempted by AB5, must consider the Dynamex ABC test or risk facing the consequences. In many cases, this will mean re-categorizing independent contractors as employees and providing, among other things, meal breaks, overtime-pay, and contributions to unemployment insurance. These companies should also be paying close attention to: (1) the forthcoming wave of litigation expected to both challenge and clarify aspects of AB5, such as which businesses qualify under certain exemptions; (2) whether the California Supreme Court provides any guidance regarding retroactivity; and (3) any additional developments to AB5 prior to it taking effect.
[1] On September 12, 2019, the California Supreme Court held in ZB, N.A. v. Superior Court of California, that PAGA does not allow workers who have entered agreements that subject wage-related disputes to arbitration to recover back pay and limited a company’s liability under these claims to cumulative civil penalties per violation. The ruling is a setback to those workers who have relied on PAGA to recover unpaid wages outside of forced solo arbitration, since PAGA claims belong to the state and are thus not subject to arbitration.
[2] “Professional services” include marketing, human resources, travel agent services, graphic design, grant writing, fine artistry, services provided by an agent licensed to practice before the IRS, payment processing, unlicensed photography, freelance writing, and services provided by: licensed estheticians, electrologists, manicurists, barbers and cosmetologists.
[3] “Referral agencies” are businesses that connect clients with “service providers” to provide design, photography, tutoring, event planning, minor home repair, moving, home cleaning, errands, furniture assembly, animal services, dog walking, dog grooming, web design, picture hanging, pool cleaning, or yard cleanup related services.
Garett Hill is an Associate of the Firm. His practice focuses on all stages of business litigation.
Prior to joining the firm, Garett was a certified law clerk with the Re-Entry Clinic at Loyola Law School where he successfully represented Los Angeles residents seeking to expunge or seal their prior convictions or trying to obtain or restore a license that had been negatively impacted by prior convictions. Garett completed the Corporate Law Concentration at Loyola Law School where he excelled learning within the various substantive areas of business law. Additionally, Garett worked as a legal intern in-house at AECOM, where he primarily focused on corporate governance and construction law matters. He also worked as a law clerk at Girardi & Keese where he gained invaluable exposure to high-volume litigation.
Jeffrey F. Gersh is a Partner of the firm. Before joining Stubbs Alderton & Markiles, LLP, Jeffrey was Managing Partner of the Gersh Law firm, Inc. for over 10 years and a partner for 25 years with a major national litigation law firm. Jeffrey has been named a Thomson Reuters “Super Lawyer” for more than 7 years by his peers; an honor only achieved by less than 2.5% of attorneys in California.
Jeffrey successfully litigates, arbitrates, or mediates for both plaintiffs and defendants complex business and commercial matters, whether for individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners. Jeffrey successfully handles disputes regarding contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Jeffrey approaches his litigation practice from a business perspective, rather than purely transactional. In addition to representing his clients in litigation and dispute resolution matters, Jeffrey handles many of their various transactional matters relating to general business, trademarks, trade dress, copyrights and other intellectual property matters, trade secret matters, and employment matters to name a few.
Jeffrey has been directly involved in litigation and business matters for clients not only in California, but also in New York, Nevada, Texas, Arizona, London, Australia, and Estonia and other places. He litigates cases from inception through trial and in some cases appeal, directly responsible for all aspects of the prosecution, defense and resolution of his client’s complicated and sophisticated matters in both state and federal courts. As a result of his commitment to his client’s needs, he has enjoyed long-standing client relationships.
For more information about our Business Litigation Practice please contact Garett Hill at or Jeff Gersh at .