One of the most significant, yet thorny, questions in labor and employment law is the classification of workers.1 For individual workers, classification as employees or independent contractors poses an “important threshold question” for determining their entitlement to legal protections.2 For employers, classification decisions may confer “unfair competitive advantage[s]” to those who misclassify their workers as independent contractors.3 And for federal and state governments, misclassification may “depriv[e] [them] of billions of dollars in tax revenue.”4 This question has become even more salient in the twenty-first century due to emerging forms of work arrangements, particularly within the so-called “gig economy.”5 On September 18, 2019, California enacted Assembly Bill No. 56 (A.B. 5), which codifies the California Supreme Court’s decision on worker classification in Dynamex Operations West, Inc. v. Superior Court7 and extends its application within state law.8 A.B. 5 aims to ensure interpretive consistency and promote predictability while empowering workers across California.9 But it suffers from similar interpretive ambiguities as prior iterations of worker-classification frameworks and raises the risk that employers may restrict worker flexibility. Furthermore, absent an increase in worker bargaining power, A.B. 5 may not adequately protect workers’ rights going forward.
Both state and federal courts have long struggled to develop legal tests to classify workers as employees or independent contractors.10 In S.G. Borello & Sons, Inc. v. Department of Industrial Relations,11 the California Supreme Court conducted a multifactor analysis that considered “common law principles”12 alongside the “history and fundamental purposes” of the law being interpreted in order to determine worker status.13 But the complex, subjective multifactor test in Borello did not promote consistency and rendered worker status unpredictable.14 Moreover, the Borello court’s consideration of numerous factors15 gave employers free rein to “posit an almost endless number of factors that a court could consider in supporting a finding that the worker is an independent contractor.”16 The federal courts have not fared any better. The “economic reality test” used to determine worker status under federal law considers a list of factors “briefer than, but somewhat comparable to,” the list considered in Borello.17 As in Borello, federal courts hold that “no one factor [of the economic reality test] is determinative” and instead consider “all the circumstances.”18 Such a “totality-of-the-circumstances approach” likewise “allows for a considerable amount of subjective judgments”19 and “begs questions about which aspects of ‘economic reality’ matter, and why.”20
Recently, in Dynamex, the California Supreme Court sought to offer a clearer approach by adopting a more rigid framework known as the ABC test.21 Dynamex concerned a state wage order that defined “employ” as “suffer or permit to work.”22 Writing for a unanimous court, Chief Justice Cantil-Sakauye held that the state’s definition of “employ” in the wage order should not be read literally23 and should be interpreted broadly.24 Specifically, the Chief Justice held, the wage order’s definition of “employ” requires “placing the burden on the hiring entity to establish that the worker is an independent contractor” who is not covered by the order.25 To meet this burden, the hiring entity must “establish each of the three factors embodied in the ABC test”:
(A) that the worker is free from the control and direction of the hiring entity 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 the work performed.26
In Dynamex, the court detailed the shortcomings of other multifactor tests27 and concluded that the more rigid ABC test would “provide greater clarity and consistency, and less opportunity for manipulation.”28 In addition, the court cabined the application of the ABC test to wage order cases.29 Thus, an important remaining question was “whether and to what extent the court’s holding in Dynamex applies to other employment controversies beyond the wage order context.”30
A.B. 5 enshrined the Dynamex decision and attempted to address that remaining question.31 The core of A.B. 5 — the ABC test — is stated in nearly every version of the bill.32 As the bill developed, so too did the test’s reach. The original bill expressed an intent to “codify” Dynamex and “clarify the decision’s application in state law,”33 though it neither quoted the ABC test nor elucidated its reach. State legislators then amended the bill to add the language of the ABC test and specify that the test should be applied to provisions of the Labor Code and wage orders of the Industrial Welfare Commission.34 The Assembly then amended the bill again to extend the application of the ABC test to provisions of the Unemployment Insurance Code.35 The final bill maintained this broad application of the test.36 The bill also stated a goal of countering misclassifications, suggesting that part of the legislature’s purpose was to create a more consistent and predictable legal standard.37
A.B. 5 provides for a number of exemptions.38 The final bill exempts seven different categories of occupations or business relationships from the ABC test, including licensed professionals such as lawyers and architects.39 If, however, a court determines that the ABC test “cannot be applied . . . based on grounds other than an express exception,” then the multifactor Borello standard will apply.40
Since the passage of A.B. 5, ridesharing technology companies Uber and Lyft and online delivery services DoorDash, Instacart, and Postmates have led a $110 million campaign to qualify a 2020 statewide ballot initiative to define many of their workers as independent contractors.41 They have also disputed the idea that the ABC test would classify their workers as employees.42
The California legislature modeled A.B. 5 on Dynamex, with the hope that a simpler and broader test for determining worker status would afford increased consistency, predictability, and worker protection. While the legislature embraced lofty aims in enacting A.B. 5, the law’s legal and practical consequences give powerful reasons for pause. First, A.B. 5’s shift away from subjective multifactor inquiries does not on its own guarantee interpretive consistency and predictability. In fact, as opponents of the bill have noted, the ABC test raises some interpretive ambiguities. Second, A.B. 5 carries the risk that employers will restrict — or, at least, threaten to restrict — worker flexibility in response to the classification of their workers as employees. Lastly, even if interpreted consistently and predictably, the law would still fail to achieve worker empowerment without an increase in worker bargaining power, which has emerged as an area ripe for state action under the Trump Administration.
To begin with, A.B. 5 embraces the clearer and broader ABC test43 as a way to curb the interpretive ambiguities in commonly used multifactor tests. But given the lingering confusion around the ABC test, A.B. 5 fails to offer the kind of clarity promised by the Dynamex court.44 For example, one major ambiguity lies in the lack of clarity in prong B, which asks whether a “worker performs work that is outside the usual course of the hiring entity’s business.”45 Dynamex, one of the cases that discussed prong B, included a brief explanation of the prong and the public policy arguments behind it46 but did not expressly define what counts as “within the usual course of business.”47 Recently, the Ninth Circuit observed that all of the different “formulations” of prong B adopted by other jurisdictions should be considered in determining worker status.48 That hardly helps because those formulations included “whether the work of the employee is necessary to or merely incidental to that of the hiring entity, whether the work of the employee is continuously performed for the hiring entity, and what business the hiring entity proclaims to be in.”49 The Ninth Circuit’s approach thus reverted to the subjective multifactor inquiries that the ABC test aims to avoid. For example, it would probably be a stretch for Uber to argue that its drivers are not necessary to its business50 or to claim their work (driving) is not continuously performed. But Uber could argue (and, in fact, has argued), based on the third formulation cited by the Ninth Circuit, that it is a “technology platform”51 as opposed to “a firm providing goods and services.”52 Thus, the Ninth Circuit’s interpretation of prong B offers an example of potential ambiguity in the ABC test, hindering the ability of A.B. 5 to achieve clarity in worker classification.
Another interpretive ambiguity is whether the ABC test will result in different classifications for the same type of workers under different state laws. This question arises because A.B. 5 codifies Dynamex and extends its ABC test to non–wage order cases, while Dynamex explicitly grounded its holding in wage order cases. Dynamex reasoned that applying the broader ABC test in wage order cases finds its rationale in part in the remedial objective of wage orders to guarantee “minimal wages and working conditions” for workers.53 Furthermore, in its explanation of prong B, the Dynamex court emphasized the importance of ensuring that “workers who need and want the fundamental protections afforded by the wage order do not lose those protections.”54 Some future courts may cite these public policy arguments that are tailored to wage order cases when applying the ABC test in different contexts.55 Yet some courts may not. Indeed, since A.B. 5 was born from Dynamex, it remains unclear whether the ABC test, when conducted pursuant to A.B. 5, would apply with equal force to a range of state labor and employment laws.
Second, on a practical level, A.B. 5 fails to fully anticipate the risk of reduced flexibility among workers reclassified as employees.56 For instance, upon the classification of their drivers as employees, companies like Uber and Lyft can (and have claimed they will) introduce restrictions on their drivers’ flexibility, including requiring uniforms,57 instituting rigid work shifts, mandating fixed locations, imposing a minimum number of hours per week, and so on.58 The argument that employee status may hinder worker flexibility — adopted by A.B. 5’s opponents as what some consider a manipulative tactic59 — has resonated among some gig workers.60 Yet many commentators have rebutted this concern, as it is employers, not labor laws, that “prohibit flexible working conditions.”61 And, as Professors Veena Dubal and Sanjukta Paul argue, it seems unlikely that gig economy companies would transition from their current business models to shift-based models because they “rely on an oversupply of workers who desire some schedule flexibility.”62 Dubal and Paul also argue employee status will “necessarily increase the bargaining power of these workers” and better position the workers to bargain for greater schedule flexibility due to heightened income security and predictability.63 But even scholars acknowledge that they are unable to predict exactly how gig economy companies will react to A.B. 5.64 Whether employers will restrict worker flexibility is unknown, but their discussion of this possibility may dissuade workers from supporting the law and thus impinge on its viability, especially in light of broader legal and political resistance.65
Finally, even if A.B. 5 avoided the aforementioned legal and practical pitfalls, the law may not adequately protect workers without an increase in worker bargaining power. The minimum protections afforded by A.B. 5 through the use of the ABC test for employee classification are an improvement, but some commentators argue those protections “fall far short of ensuring that workers earn what they need.”66 In particular, those protections may not be “adequately enforced” when workers lack the right to unionize and collectively bargain with employers.67
A.B. 5’s silence on worker bargaining power is particularly regrettable given that recent developments at the federal level have produced an opportunity for worker empowerment at the state level. Since the beginning of the Trump Administration, the National Labor Relations Board (NLRB) has reversed its prior position and issued an opinion stating that Uber drivers are independent contractors — not employees — because they have “virtually complete control of their cars, work schedules, and log-in locations” and can work for Uber’s competitors.68 This shift in position excludes Uber drivers from the scope of the National Labor Relations Act69 (NLRA), which regulates the collective bargaining rights of employees.70 Under the Garmon71 preemption doctrine, states may not intervene in such NLRA-regulated activities via statutory regulation72 unless the affected workers are exempt from the NLRA’s coverage.73 Therefore, by pronouncing that Uber drivers are independent contractors not covered by the NLRA, the NLRB has left states “free to regulate the union activity and labor relations”74 of these drivers and similarly situated workers. In other words, California could have stepped in through A.B. 5 or its amendments to grant workers increased bargaining power and solidify the protections promised by the law. So far, it has not.75
A.B. 5 envisions a step forward from traditional standards for worker classification, but its flaws limit its reach and effectiveness. The legal and practical consequences of A.B. 5 may occasion protracted legal and legislative battles,76 regardless of the potential weakness of the arguments put forward by Uber and its ilk.77 In the meantime, without an increase in worker bargaining power, it is uncertain if, when, and how A.B. 5 will bring about much-needed substantive protections for misclassified workers.