Workers' Compensation

AB 5 and the Gig Worker Debate

by Julius Young

After a contentious debate during the 2019 legislative session, AB 5 passed and was signed by Governor Newsom on September 18.

Assembly Bill 5 (AB5), which goes into effect January 1, 2020, codifies the “ABC test” adopted by the California Supreme Court in 2018 in the Dynamex Operations West Inc. v. Superior Court of Los Angeles(2018) 83 Cal Comp Cases 817 case. Under Dynamex, for purposes of wage orders, workers are presumed to be employees unless the hiring entity can satisfy a three-prong test to rebut the presumption of employment status.

The Dynamex case did not define employment for workers’ comp purposes or other issues outside of obligations covered by wage orders. In Leamon Perkins v. Don L. Knox (ADJ10183569) (2018) 84 Cal Comp Cases 44, Commissioners Zalewski, Razo and Lowe held that:

“Since the Dynamex court did not overturn the Borello standard for determining an applicant’s employment status with respect to the requirement of providing workers’ compensation benefits, and expressly limited the application of the ABC test to the determination of employment status with regard to wage orders, we conclude that the Borello standard applies here.”

In Perkins the WCAB panel remanded for further development of the evidence on how Mr. Perkins’ work should be treated under the multi-factor employment test set forth in S.G. Borello & Sons v. Dept. Of Industrial Relations (1989) 54 Cal Comp Cases 80.

AB 5 expands the ABC test to the Labor Code and the Unemployment Insurance Code.

Under Dynamex and AB 5, to rebut the presumption the hiring entity must show all of the three following things:

  • The worker is free from the control and direction of the hiring entity
  • The work is outside the usual course of the hiring entity’s business
  • The worker is customarily engaged in an independently established trade or occupation

In a signing message, Governor Newsom stated:

Assembly Bill 5 is landmark legislation for workers and our economy. It will help reduce worker misclassification-workers being wrongly classified as “independent contractors”, rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits.

The hollowing out of our middle-class has been 40 years in the making and the need to create lasting economic security for our workforce demands action

Exemptions for various occupations were added up until final passage of the bill, and after the bill was passed and signed, industries that did not win exemptions in the negotiations remained unhappy.

A November 2019 analysis from the UC Berkeley Center for Labor Research and Education estimates that of workers claimed as independent contractors, the ABC test applies to 64%, does not apply to 9% and will apply to 27% unless strict criteria are met. Clearly, the impact of AB 5 will be felt beyond gig employment situations.

Attacks on AB 5 have begun on both legal and political fronts.

A lawsuit filed in October 2019 in the U.S. District Court Southern District of California by the California Trucking Association seeks declaratory and injunctive relief prohibiting the state of California from applying and enforcing Dynamex and AB 5 against plaintiff trucking firms. The plaintiff trucking companies in that action allege that Dynamex and AB-5 are preempted by the Federal Aviation Administration Authorization Act of 1994 (“the FAAAA”) which governs motor carriers.

On the political front, gig-economy companies Uber, Lyft and DoorDash announced in October 2019 a planned initiative for the November 2020 ballot, the “Protect App-Based Drivers & Services Act” initiative. Uber, Lyft and DoorDash pledged $30 million each to gather signatures and promote the initiative. With labor unions “all-in” in support of AB 5, the battle over AB 5 is shaping up to be a colossal contest over the future of labor rights in California and beyond.

If the initiative in its present form is passed, it would trump other provisions of the Labor Code and Unemployment Insurance Code and provide that “an app-based driver is an independent contractor and not an employee or agent with respect to his or her relationship with a network company if the following conditions are met”. Those specified conditions are as follows:

  • The network company does not unilaterally prescribe specific dates, times of day, or a minimum number of hours during which the app-based driver must be logged onto the app or platform
  • The network company does not require the app-based driver to accept any specific rideshare or delivery service request as a condition of maintaining access to the app platform
  • The network company does not restrict the app-based driver from performing services through other companies except during the engaged time and does not restrict working in other lawful occupations

The initiative specifies that app-based drivers be guaranteed certain mileage compensation, payment of at least 120% of the higher of state or local minimum wage and guarantees that tips will go to the drivers. However, there is already controversy about what wages app-based drivers would earn under the initiative.

An October 31, 2019 analysis by Ken Jacobs and Michael Reich of the UC Berkeley Labor Center claims that “After considering multiple loopholes in the initiative, we estimate that the pay guarantee for Uber and Lyft drivers is actually the equivalent of $5.64 per hour”. They cite the following loopholes: driver waiting time not counted as work time, unreimbursed costs while waiting for rides, under-reimbursed costs during driver engaged driving times, and problems with the health care stipend. Uber economists have challenged some of their assumptions.

The initiative specifies that companies will be required to carry or provide occupational accident insurance for medical expenses and lost income resulting from injuries while the app-based driver is online with the app or platform. Medical coverage up to at least $1,000,000 would be required as well as up to 104 weeks of disability payments (which appear to be analogous to TD benefits under the Labor Code) and death benefits.  A review of the current draft of the initiative does not reveal any provision for permanent disability benefits, so the package is clearly not equivalent to benefits under California’s Labor Code.

Uber executives have gone on record saying that they believe that app-based drivers are not employees under the Borello test, but it does not appear that there is yet any definitive California workers’ comp panel or appellate decisions on how app-based companies will be treated under Borello. Because platforms have different operating models, there may not be a one-size fits answer if Borello is the standard. But if AB 5 remains in effect, it is highly unlikely that the app platforms will prevail.

And so as AB 5 goes into effect, the legal landscape remains somewhat murky.

The workers’ comp bar is beginning to see more and more cases where gig employment is an issue. AOE/COE is the big issue. But sometimes where a worker has worked simultaneously for multiple app-based platforms, there may be a TD rate issue.  Cumulative trauma claims may involve alleged app-based work. Surveillance may turn up app-based activities.

What I find disingenuous is the argument being advanced by Uber and Lyft execs and some of their spokespersons that AB5 would destroy the opportunity to work for those drivers who only want to work occasionally, or work odd hours, or flexible schedules. Yes, there are parents, caregivers, retired people, artists, students and a host of other groups who like gig work with its flexibility.

There is no reason that the gig economy companies could not continue to offer flexible schedules to those workers.

There are many workers who are not working “gig work” off an internet platform who work part -time. They are covered by workers comp and are eligible for unemployment insurance. They may or may not be eligible for health benefits depending on whether they work more than a minimum amount of hours.

Many of the app-based platforms should be able to accommodate those workers on their platform with a reasonable adjustment to their model. The legislature and the Governor should be commended from not bending to the scare tactics of these tech titans.

Stay tuned.

Julius Young
© Copyright 2019 by Julius Young
All rights reserved.

To Members of the California Assembly:

Assembly Bill 5 is landmark legislation for workers and our economy. It will help reduce worker classifications—workers being wrongly classified as “independent contractors,” rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits.

The hollowing out of our middle-class has been 40 years in the making, and the need to create lasting economic security for our workforce demands action. Assembly Bill 5 is an important step. A next step is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work—all while preserving flexibility and innovation.

In this spirit, I will convene leaders from the Legislature, the labor movement and the business community to support innovation and a more inclusive economy by stepping where the federal government has fallen short and granting workers excluded from the National Labor Relations Act the right to organize and collectively bargain.

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