A closer look at AB 5 and other bills that deal with Dynamex decision

Chase Monroe (pictured), barber at Apollo's Barber Shop among those affected by changes related independent contractor-related laws. Tammy Murga/ The Signal

More than 2,000 new proposals were introduced for this year’s California legislative year, including Assembly Bill 5, one of a handful of bills that could dramatically affect both businesses and workers over defining who is an independent contractor.

The deadline to introduce new legislation was Feb. 22, with as-expected Dynamex-related proposals, which refers to one of the most controversial court decisions in relation to the status of employees and independent contractors, on the agenda.

The Dynamex decision in 2018, brought to the Superior Court of Los Angeles by delivery drivers at Dynamex, paved the way to existing law that changes the way businesses classify workers as independent contractors. A three-part formula, commonly known as the ABC test, says workers are independent contractors and not employees if companies do not control their work, their tasks are outside of the company’s core business, and if they run independent businesses performing the same work.

Among those bills directly targeting Dynamex is AB 5, which California Assemblywoman Lorena Gonzalez, D-San Diego, introduced to attempt to codify the decision and “clarify the decision’s application in state law.”

“Individuals are not able to make it on three side hustles. That shouldn’t be the norm. That shouldn’t be accepted,” Gonzalez said in a statement. “In a state with one of the country’s highest poverty rates, this court decision is crucial to helping Californians maintain solid employment in an economy that’s left millions struggling.”

The Dynamex decision focused on workers’ right to minimum wage and overtime if they passed the ABC test, but Gonzalez’ bill would take it to the next level by adding benefits such as paid family leave, workers’ compensation, and health and unemployment insurance.

Brian Koegle, employment and labor law attorney at Poole & Shaffery, said he views the proposed bill “as a step in the right direction.”

“From an employer’s standpoint, Dynamex is a difficult standard for most employers to comply with,” he said. “This is now a step back, a pullback on what Dynamex did. This is a good sign that legislation is applying common sense to what’s happening on the mainstream that affects small and mid-size businesses.”

The Santa Clarita Valley Chamber of Commerce, who announced in March it was joining the “I’m Independent” coalition to advocate for independent contractors, said the Dynamex decision is “putting the way of life of Californians at risk.”

“For several decades, California has allowed independent contractors to be part of the workforce, allowing individuals who need schedule flexibility and extra income to make ends meet,” said Chamber Chair Nancy Starczyk.

But those in support say the Dynamex decision is necessary to provide workers with the protection and benefits they deserve. Among them are Uber and Lyft drivers who have publicly complained about issues with payment, terminations and working conditions.

Drivers are only part of today’s mainstream gig economy and that sector is only going to grow as more Californians work as independent contractors, said Koegle. The misclassification of workers as independent contractors, however, costs the state about $7 billion annually, according to the California Division of Labor and Enforcement Standards.

AB 5 is still in the legislative process, with the latest action indicating it is headed to the Committee on Appropriations.

Other bills dealing with Dynamex include Senate Bill 238, which State Sen. Scott Wilk, R-Santa Clarita, co-authored, which looks to modify the ABC test and change it to apply legislation closer to the federal standard. Counter-response bills to Dynamex AB 71 and AB 233, which focus on clarifying that insurance agents and brokers should be considered independent contractors, are also proposed.  

In relation to bills introduced, Koegle said, “I believe that if we can take a step backward and unwind the owners’ restrictions it will open opportunities for people to make informed decisions. I encourage business owners to reach out to local legislatures to support these types of acts because that’s the only way we will be able to change the status quo.”

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