Sep 02, 2020 - 10:00am

California’s Classification Calamity Continues


Executive Director, Labor Policy

The California legislature on August 31 passed a piece of emergency legislation to address a crisis of its own making. The measure, AB 2257, would, among other things, exempt certain categories of independent contractors who have seen their lives upended and livelihoods destroyed because of the state’s ill-conceived law known as AB 5.  Passed in 2019, AB 5 has created a maelstrom in the Golden State as individuals and businesses alike grapple with it.

The latest round of corrective action leaves much to be desired, to say the least. As one might expect, the bill keeps in place the AB 5 standard generally, but it broadens and attempts to clarify some of the categories under the law’s business-to-business and referral agency exemptions.

It also removes an arbitrary cap of 35 submissions that applied to freelance writers and photojournalists, whom the law had seriously impacted, and it provides exceptions for a slew of new categories from home inspectors to paid contest judges. These categories revert back to the previous standard, known as the Borello test for evaluating employment, but only if a putative employer can satisfy the complicated factors that qualify for an exemption from the AB 5 test.  Despite these “fixes,” AB 2257 leaves many issues unresolved by AB 5’s fundamental flaws.

The saga of AB 5—highlighted by this legislation that should not even be necessary—illustrates the effect of policy-making by the uninformed.  It began with the California Supreme Court, which in 2018 unilaterally changed its standard for interpreting whether an individual can be classified as an independent contractor.  The Court’s decision in a case known as Dynamex modified what is known as the “ABC” test for evaluating an employment relationship.

In 2019, the California legislature codified in AB 5 the new Dynamex ABC test. The upshot of California’s new version of that test was that it became much harder for someone to be classified as an independent contractor, leaving employers either to assume all of the attendant liability associated with an employer-employee relationship or to stop using the services of independent contractors who did not meet AB 5’s stringent test.

While AB 5 seemed to target prominent companies in the so-called “gig” economy, the law had a much broader reach.  Activist politicians filed a lawsuit against two such companies, Uber and Lyft, which nearly ceased operations in California before a state appeals court provided them a temporary reprieve two weeks ago. Meanwhile, individuals who until recently had provided services ranging from language interpretation to playing Santa Claus were not so lucky. 

The result was as a debacle as predictable as it was far-reaching. The broad scope of AB 5’s language created a potential liability for countless businesses that could not afford to take on new employees, so they simply severed ties or otherwise found ways to work around the law.  The response from the newly unemployed was equally negative.  Individuals who previously had offered services as independent contractors in myriad industries demanded that they be exempted from AB 5, so lawmakers scrambled to do so almost as soon as AB 5 took effect. AB 2257 is just the latest iteration of changes, and more will likely come, underscoring again AB 5’s faults.

Speaking about AB 5, one musician reportedly said “this law could have single handedly crashed the California music economy,” yet Democrats in Congress hope to take it nationwide. Earlier this year, they passed the Protecting the Right to Organize (PRO) Act, which borrowed directly from AB 5’s language.  Considering how California’s law still in its infancy has caused so much turmoil, one can predict what might happen should it become the law of the land. 

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About the Author

About the Author

Sean P. Redmond
Executive Director, Labor Policy

Sean P. Redmond is Executive Director, Labor Policy at the U.S. Chamber of Commerce.