Following the launch of the so-called “MeToo” movement, the California Legislature (controlled by a Democratic supermajority) has aggressively churned out new bills that further strengthen the ability for workers to sue their employers and increase the already-significant regulatory burden on these companies. This fall, the California Legislature is geared to send three significant bills to Governor Gavin Newsom that all California employers should carefully follow.
Assembly Bill 5 – Dynamex’s “ABC Test” To Be Codified
This past Tuesday, California lawmakers passed AB 5, which will codify Dynamex v. Superior Court, a controversial California Supreme Court decision that upended the existing legal standards applied in determining whether a worker is an employee or an independent contractor. Under Dynamex’s ABC test, a person providing any labor or services is presumed to be an employee rather than an independent contractor unless the hiring entity demonstrates that (a) the person is free from the control and direction of the hiring entity in connection with the performance of the work, (b) the person performs work that is outside the usual course of the hiring entity’s business, and (c) the person is customarily engaged in an independently established trade, occupation, or business.
While Dynamex only applied to Industrial Welfare Commission’s Wage Orders governing minimum wages, overtime, and meal and rest breaks, AB 5 goes much further. If signed into law, the ABC test will be expanded to cover both the Labor Code and the Unemployment Insurance Code. AB 5 is also narrower in certain respects than Dynamex because the bill’s author, Assembly Member Lorena Gonzalez, agreed to a laundry list of occupational exemptions after extensive negotiations with outside interest groups. These occupational exemptions include doctors, dentists, lawyers, engineers, accountants, architects, Realtors, travel agents, graphic designers, human resources administrators, grant writers, marketers, fine artists, investment advisors and broker-dealers. These occupations will remain subject to the original common law standard set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989).
Now that the bill has been passed, Governor Newsom (who has already endorsed the bill) is widely expected to sign the bill into law. Readers of the blog should be well aware of the impacts of Dynamex and the need to consult their legal counsel regarding the proper use of independent contractors. That said, companies should also take into account the new developments from AB 5 and continue to consult with their legal counsel regarding the many nuances surrounding the ABC Test.
Assembly Bill 51 – A Ban on Mandatory Arbitration
It has long been settled that the Federal Arbitration Act (“FAA”) preempts state laws that attempt to invalidate arbitration agreements that fall within the broad sweep of the FAA. In light of this simple reality, former Governor Jerry Brown previously vetoed two prior attempts by the California Legislature (AB 3080 and AB 465) to ban arbitration as a condition of employment, recognizing that these bills would inevitably be struck down by courts.
AB 51 bans the use of arbitration as a condition of employment and makes it a criminal misdemeanor for businesses to make workers or job applicants waive their right to sue for violations of the California Fair Employment and Housing Act (“FEHA”) or other employment statutes as a condition of employment. Employers would also be prohibited under the proposed legislation from retaliating against employees that refuse to agree to arbitration. AB 51 is a nearly identical copy of previously-vetoed AB 3080 and is also authored by Assembly Member Lorena Gonzalez.
Notably, AB 51 does not affect arbitration agreements executed before January 1, 2020. Although the legality of AB 51 will certainly be challenged in court, companies that are considering implementing arbitration agreements should speak to their legal counsel about the possibility of implementing them before the statutory deadline in the event that AB 51 is signed into law.
Assembly Bill 9 – Expansion of Time to File DFEH Claim Extends from One to Three Years
The California Fair Employment and Housing Act (“FEHA”) prohibits and provides a private right of action for discrimination or harassment of employees based on race, sex, age, physical or mental disability, medical condition, sexual orientation, veteran status, and other protected characteristics. Under current law, individuals must “file a complaint with the Department of Fair Employment and Housing within one year from the date upon which the last unlawful practice occurred.”
AB 9 would extend the deadline to file an allegation of unlawful workplace harassment, discrimination, or civil rights-related retaliation with the DFEH from one year to three years. AB 9 would therefore impose a statute of limitations period that is six-times the length of the federal standard and three-times the length of the current state standard. Notably, the bill does not revive claims already lapsed under current law. However, it does not specify what happens to existing claims for which the existing administrative filing deadline will not expire until after the enactment of the bill.