Legislation aimed at determining how businesses determine who’s an employee and who’s an independent contractor is now headed to the desk of Gov. Gavin Newsom, representing an attempt by lawmakers to codify a controversial state Supreme Court decision.
Assembly Bill 5, the product of a lengthy debate in the Legislature, is an attempt by lawmakers to address the 2018 Dynamex decision, a lawsuit in L.A. County by Dynamex delivery drivers, who felt they should be classified as employees, rather than independent contractors.
Santa Clarita Valley lawmakers argued the bill along partisan lines, while the business community expressed concern over the onus being placed on small businesses.
AB 5 calls for businesses to use a three-part formula, which is being called the ABC test, to determine if workers are independent contractors or employees, according to the bill’s text.
Following debate on which occupations should be exempted, the bill was approved in the state Senate on Tuesday and passed the Assembly on Wednesday before it was sent to Newsom.
Assemblywoman Christy Smith, D-Santa Clarita, and Sen. Henry Stern, D-Canoga Park, both voted to support the legislation, while Assemblyman Tom Lackey, R-Palmdale, and Sen. Scott Wilk, R-Santa Clarita, opted to oppose the bill.
Lackey said Thursday he expects Newsom to sign the bill, but he’s frustrated with the way lawmakers decided who is exempt from the law.
While occupations like fisherman, engineers, lawyers and barbers were ultimately exempted from the bill’s effects, businesses related to trucking and the gig economy were not, Lackey said. “It appears the only ones who are being exempted are those in industries with strong lobbying groups, but there are many people who don’t have that luxury.”
Holly Schroeder, president and CEO of the SCV Economic Development Corp., previously said there are times when additional work comes in, so companies need to staff up by tapping into a willing and readily available pool of independent contractors. “But now if these people are classified as employees, it makes it a much more difficult proposition.”
Wilk said he opposed the bill because it left out many critical industries.
“By excluding some independent contractors, the Legislature is picking winners and losers,” according to Wilk. “In many cases, this will mean the elimination of someone’s livelihood.”
“That’s my biggest frustration,” Lackey added. “We’re doing things that will impact industries heavily without any clear criteria that states who’s exempted and why. When you’re dealing with something as fragile as people’s livelihood, I don’t think this is the right way to make policy.”
Smith said Thursday she feels AB 5 is a step in the right direction because it establishes some protections for local employees, “and most importantly, (adds) clarity to the California Supreme Court’s Dynamex decision.”
“There’s still much to be done to protect emerging business models and hold harmless some small businesses who may find themselves outside this bill’s parameters,” Smith added. “I’ve committed to working with our community’s business leaders to refine as needed going forward.”
Stern agreed that the bill is not perfect, but without it, “The Dynamex decision would have upended thousands of businesses across the state, so inaction wasn’t an option.”
“As the Senate appointee to the Future of Work Commission,” Stern said, “I intend to dig in over the recess to address outstanding issues with AB 5 and uncertainty in our workforce’s future in general.“