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Business Law

Current Status Of AB 5

Assembly Bill 5 (Worker Status: employees and independent contractors) (“AB 5”) is the proposed codification of the ABC Test for the California Labor Code and California Unemployment Insurance Code based on the California Supreme Court decision of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal.5th 903 (2018). AB 5 replaces the current common law analysis under S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), for determining the status of a worker as either an employee or independent contractor.

On August 12, 2019, the Senate Appropriations Committee approved AB 5 for the suspense file. The suspense file is a holding placing for bills with significant fiscal impacts. Bills are generally held on the suspense file before each fiscal deadline so that each House can evaluate the total impacts to the state. Bills which are moved out of suspense then go to the floor while bills held in suspense die.

In its current form and without any clarification or limiting instruction pending, AB 5 raises serious constitutional due process concerns based on vagueness, especially in its enforcement with respect to the franchise business model. Among others, the phrase “usual course of the hiring entity’s business” within the second prong of the ABC Test lacks any ascertainable parameters for application and, arguably, “transcends any permissible generality.” Mike Naughton Ford, Inc. v. Ford Motor Co., 862 F.Supp. 264, 271 (D. Col. 1994); see also Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 497 (1982) (a law may be challenged as “unduly vague” in violation of due process). An article regarding the constitutionality of AB 5 is being prepared and its publication anticipated within the Business Law News by year end.

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