Reprinted with permission of the Lawyers Association and the California Labor & Law Review.

Volume 35 No. 3 May 2021

Official Publication of the California Lawyers Association Labor and Employment Law Section

Shannon Liss-Riordan has brought and won groundbreaking lawsuits that have shaped the law protecting workers in multiple industries, such as Dynamex Ops. W. v. Superior Court and Vazquez v. Jan-Pro Franchising Int’l, Inc. She MCLE Self-Study: is currently representing workers in a number of cases against “gig economy” companies that THE NEW ABC’S save on labor costs by misclassifying employees as independent contractors. She OF CALIFORNIA represents employees nationally, at the trial court and appellate levels. A graduate of Harvard Law School and Harvard College, Ms. Liss-Riordan co-founded Lichten EMPLOYMENT LAW & Liss-Riordan, P.C. Anastasia Doherty is an associate at Lichten & Liss-Riordan. A dedicated workers’ rights advocate, who proudly represents workers asserting wage-and-hour and individual discrimination claims against their employers, she is By Shannon Liss-Riordan and Anastasia Doherty currently involved in a number of cases in which employees have been misclassified as independent contractors, such as and Lyft. Ms. Doherty attended Georgetown University, where she studied English and Justice & Peace, and went on to attend Northeastern University School of Law. The authors can be contacted at (617) 994- 5800, [email protected].

INTRODUCTION tests, including the test that had previously been used under S.G. Borello & Sons, Inc. v. Dep’t of Indus. THE “ABC” TEST COMES TO CALIFORNIA Relations,3 the three-pronged, conjunctive version of the Massachusetts ABC test is less easily manipulated In April of 2018, the California Supreme Court and increases predictability.4 The Dynamex Court issued the unanimous, 82-page landmark opinion, explained that multi-factor tests create uncertainty Dynamex Operations West, Inc. v. Superior Court,1 for hiring businesses and workers regarding whether announcing the adoption of the ABC test to a worker has been correctly classified and leave open distinguish employees from independent contractors. a loophole in employment protections, because hiring The Court explained that the Massachusetts version businesses may more easily manipulate workers’ of the ABC test2 best forwarded the remedial purpose circumstances with an eye towards passing the multi- of California law. Unlike multi-factor employment factor test.

— Inside the Law Review — 1 The New ABC’s of California Employment Law 6 Vazquez’s Retroactivity Holding Creates Unintended Consequences for Independent Contractors 11 California Employment Law Notes | 13 Wage and Hour Case Notes 18 NLRA Case Notes | 23 Public Sector Case Notes | 27 Mediation Tips and Arbitration Bits 30 Cases Pending Before the California Supreme Court | 32 Message from the Chair In contrast, the ABC test places the burden on the alleged employer to meet all three prongs Employers have scrambled to cabin in order to justify classifying a worker as an independent the impact of the Dynamex decision. contractor. This includes the strict version of prong B adopted in Massachusetts, which requires the alleged employer to demonstrate specific legislative carve-outs.12 the drivers.16 Notably, companies that the worker performs work Now that retroactive application will be unable to take refuge in that is outside the usual course of Dynamex has been confirmed, the law if they do not provide of the hiring entity’s business.5 AB 5 should also apply retroac- these protections.17 Because of the strength of prong tively, since the Vazquez Court Uber has argued that Prop B, Massachusetts courts have has held that it merely clarifies 22 applies retroactively and routinely held that a worker’s existing law.13 thus moots pending misclas- employment status may be Nonetheless, employers sification claims. In James v. decided as a matter of law on persist in attempting to defeat Uber Technologies, Inc., the court summary judgment6 and have or limit the application of the rejected this argument and regularly certified misclassification ABC test to California workers. certified a class of all Uber drivers cases as class actions.7 Some emerging legal battles are in California who opted out of Employers have scrambled to outlined below. arbitration; the court held that cabin the impact of the Dynamex Prop 22 may simply serve to cut decision. First, they argued that CAMPAIGNS AGAINST THE it should not be retroactive, an off the class liability period as argument that the California ABC TEST of its effective date, December 18 Supreme Court rejected in 16, 2020. The court noted that PROPOSITION 22 AND OTHER are presumptively limited January in Vazquez v. Jan-Pro LEGISLATIVE INITIATIVES Franchising International, Inc.8 The to prospective-only application, Court applied the usual rule that A number of “gig economy” absent a clear intent to apply 19 judicial decisions clarify what the companies, including Uber, retroactively. Proposition 22 law is and are given retroactive Lyft, DoorDash, Postmates, contains no express retroac- 20 effect and declined to create an and Instacart, who were unsuc- tivity provision. exception based upon arguments cessful at obtaining a legislature Worker advocates are now that the “change” in the law carve-out for their workers, on guard that gig companies will violated due process concerns.9 bypassed the legislature and try to replicate Prop 22 in other Employers have also judiciary by taking the issue areas of the country, to assure attempted to limit the application directly to California voters with independent contractor status of the ABC test, in particular Proposition 22 (Prop 22).14 The for their workers under state arguing that the test does not ballot measure was the most law. Similar efforts have begun in apply to claims brought under expensive in California history Massachusetts, New York, New California Labor Code § 2802, (costing proponents over $200 Jersey, Illinois, and Colorado.21 which requires that employees million). The bill’s sponsors In Massachusetts, where the be reimbursed for necessary also spammed app-users with current version of the ABC test business expenses. While push-notifications, cautioning has been the law of the land on this question is customers that reclassifying gig since 2004, a “Proposition 22 somewhat mixed,10 the question workers as employees would clone” was recently introduced, is largely moot, as the California cause prices to sky rocket and sparking driver protests.22 legislature later passed Assembly deprive drivers of all flexibility Two strategies are needed to Bill No. 5 (AB 5).11 AB 5 codified (a myth that several courts have counteract these Prop 22 cloning Dynamex and statutorily adopted rejected).15 Prop 22 declares efforts: first, advocating for the the ABC test for California’s certain “app-based” drivers to adoption of the ABC test as the Wage Orders, Labor Code, and be independent contractors, so federal standard for determining Unemployment Insurance Code long as certain specific wage and employee status23; and, second, claims, with the exception of hour protections are provided for beating bills back in the state

2 CALIFORNIA LABOR & EMPLOYMENT LAW REVIEW VOLUME 35, NO. 3 legislatures that threaten to held AB 5 was preempted by the because the test is preempted undermine employee protections Federal Aviation Administration by the FTC Franchise Rule and by carving out a new quasi- Authorization Act of 1994 Lanham Act.36 However, these employee category that strips (FAAAA).29 However, in a more regulations were designed to workers of the protections they recent California appeal court protect against franchise scams, are currently entitled to under decision, the court held that the not to limit worker rights. Indeed, state law. ABC test was not preempted by the FTC Franchise Rule37 governs On the regulatory front, the FAAAA.30 a franchisor’s disclosure require- the Biden administration ments to a potential franchisee LIMITING THE APPLICATION OF THE has already put on hold the and prohibits deceptive conduct ABC TEST THROUGH FRANCHISING Final Rule proposed by the with respect to such disclosures AND FISSURED EMPLOYMENT (THE Department of Labor on January in the sale of a franchise. It does JOINT EMPLOYMENT QUESTION) 7, 2021, regarding “Independent not address the substantive Contractor Status Under the Large companies have relationship between franchisors Fair Labor Standards Act,” which increasingly deployed “fissured and franchisees.38 would have adopted a company- employment” hiring structures to friendly five-factor employee evade their employer obligations 2. Joint Employment status test.24 The administration under the law.31 These larger Whether the ABC test has also rescinded the DOL letter companies are arguing that the applies in the joint employment advising that a worker providing ABC test should not apply to context should not be a close services for a “virtual marketplace determine their employment call, given that the Court in company” was properly classified relationship to the worker, Dynamex adopted the ABC test as an independent contractor, because the ABC test (1) cannot to clarify the “suffer or permit” which was widely regarded apply in the franchise context, test articulated in Martinez v. as validating independent and (2) does not apply to Combs,39 which was itself a joint contractor misclassification in joint employment. employment case. However, 25 two California Court of Appeal the gig economy. Its rescission, 1. The Franchise Context decisions have undermined along with pausing the Final Rule, When it adopted the ABC application of the ABC test (and indicates the current administra- test, the California Supreme conflict with the Ninth Circuit’s tion understands the significant Court favorably cited cases decision in Jan-Pro).40 In both role that independent contractor that had held franchisees to be cases, workers employed by misclassification plays in cabining employees.32 Further still, the worker rights. California Legislature explicitly Equilon Enterprises, Inc. (Shell), rejected a carve-out to AB 5 through intermediaries, sought LEGAL CHALLENGES that would have exempted the to hold Shell liable for wage and Another strategy companies franchisee-franchisor relation- hour violations at Shell-branded have pursued is to overturn AB ship.33 The Ninth Circuit also stations, and the courts refused 41 5 through legal challenges. Uber rejected this very argument to apply the ABC test. and Postmates challenged the under California law in Vazquez v. This result contravenes the by bringing a constitutional Jan-Pro Franchising International, reasoning of Dynamex, which challenge to the bill, arguing that Inc.,34 holding that Dynamex’s sought to simplify the analysis the bill violated their drivers’ ABC test applied to determine and broaden the protections of and their companies’ rights.26 whether plaintiff-franchisees California wage law. The ABC They sought and were denied a had been misclassified as test should be applied to each preliminary injunction enjoining independent contractors.35 alleged employment relationship, the enforcement of AB 5.27 Nevertheless, the even if the hiring entity does not In contrast, the California International Franchise directly contract with the worker, trucking association was successful Association (IFA) has brought a as the Massachusetts Supreme in obtaining a preliminary constitutional challenge against Judicial Court has held under the injunction enjoining enforcement AB 5, arguing that franchises Massachusetts version of the of AB 5 against trucking may not be subject to California’s test.42 Further, the Ninth Circuit companies.28 There, finding a ABC test under the Supremacy held the ABC test to apply in likelihood of success, the court Clause of the Constitution, Vazquez, despite the defendant’s

VOLUME 35, NO. 3 CALIFORNIA LABOR & EMPLOYMENT LAW REVIEW 3 protest in that case that it ENDNOTES that it would make little practical did not directly contract with sense to apply different tests to 1. Dynamex Ops. W. v. Superior Court, these claims, as it would impair the workers.43 4 Cal. 5th 903 (2018). Dynamex’s goal to clarify the 2. Mass. Gen. Laws Ann. ch. 149, applicable test and broaden CONCLUSION § 148(B) (West 2021); preempted protections, and because Wage Orders do not contain a private The California Supreme Court on another point by Carey v. right of action. Gatehouse Media Mass. I, Inc., 92 announced in Dynamex that it 11. AB 5 was chaptered as 2019 Mass. App. Ct. 801 (2018). was adopting the Massachusetts Cal. Stat. 296 (West). The 3. S. G. Borello & Sons, Inc. v. Dep’t of ABC test in order to simplify statute amended section 3351 Indus. Relations., 48 Cal. 3d 341 the analysis of when workers and added section 2750.3 to (1989). the California Labor Code; and can and cannot be classified as 4. Dynamex, 4 Cal. 5th 903, 964. amended sections 606.5 and 621 independent contractors. Still, 5. Id. at 965. of the California Unemployment many companies have spent 6. See, e.g., Carey, 92 Mass. App. Insurance Code, relating to employment. the last few years attempting to Ct. 801; Awuah v. Coverall North 12. AB 5 exempts from Dynamex, restrict its application and muddy Am., 707 F.Supp.2d 80 (D. Mass. and instead applies the Borello the waters so as to continue to 2010) (cited in Dynamex, 4 Cal. test to, a number of additional avoid employment protections 5th at 963); Chaves v. King Arthur’s occupations, including, but for their workers. The courts have Lounge, 2009 WL 3188948 at *1 not limited to, podiatrists, rejected many of these attempts, (Mass. Super. Ct. July 30, 2009). veterinarians, psychologists, repossession agents, commercial but plaintiffs’ attorneys have their 7. See, e.g., DaSilva v. Border Transfer of MA, Inc., 2017 WL 5196382 fisherman, and other occupations. work cut out for them fighting See Cal. Lab. Code § 2750.3(b). (D. Mass. Nov. 9, 2017); Vargas through the maze of issues that 13. See In re Marriage of McClellan, v. Spirit Delivery & Distrib. Servs., have arisen and furthering the 130 Cal. App. 4th 247, 255 (2005); Inc., 2017 WL 1115163, at *12 (D. James v. Uber Techs., Inc., 2021 WL Court’s vision in Dynamex that Mass. Mar. 24, 2017); Reynolds 254303, at *17 (N.D. Cal. Jan. 26, determining which workers are v. City Express, Inc., 2014 WL 2021) (“As a preliminary matter, entitled to employee rights should 1758301, at *12 (Mass. Super. the Court concludes that Prop 22 be a simpler matter. Jan. 8, 2014); De Giovanni v. Jani- does not apply retroactively.”). 14. Prop 22 is codified at Cal. Bus. To expand worker protections, King Int’l, Inc., 262 F. R. D. 71, 84- & Prof. Code §§ 7448-7467. The 88 (D. Mass. Sep. 21, 2009). advocatescla.inreachce.co must not onlym push back text of Prop 22 can be found at against these frivolous arguments, 8. Vazquez v. Jan-Pro Franchising Int’l, https://vig.cdn.sos.ca.gov/2020/ but also protect against end-runs Inc., 10 Cal. 5th 944, 1212 (2021). general/pdf/topl-prop22.pdf. by promoting legislative adoption 9. Id. at 1212-1216. 15. Suhauna Hussain, Uber, Lyft push Prop 22 message where of the ABC test on the state and 10. In Dynamex, the Court declined to address this question specifically you can’t escape it: your phone, federal level. because it was not briefed by the L.A. Times, Oct. 8, 2020, https:// www.latimes.com/business/ parties. Although some courts technology/story/2020-10-08/ have opined in dicta that Dynamex uber-lyft-novel-tactics-huge- may not apply to § 2802 claims, spending-prop-22; Olson v. State see Garcia v. Border Transp Grp, LLC, of California, 2020 WL 905572 28 Cal. App. 5th 558, 561 (2018), at *14 (C.D. Cal. Feb. 10, 2020), at least one California Superior appeal pending No. 20-55267 Court has held that Dynamex (9th Cir.); O’Connor v. Uber Techs., This article is available as an does apply to § 2802 claims. See Inc., 82 F. Supp.3d 1133, 1154 online self-study test. (N.D. Cal. 2015) . Johnson v. VCG-IS, LLC, Case No. (1 self-study credit for $20!) 16. Cal. Bus. & Prof. Code §§ 7448- Visit: 30-2015-00802813-CU-CR- 7452. cla.inreachce.com CXC, Ruling on Motion in Limine for more information. 17. See James v. Uber Techs., Inc., 2021 (Super Ct. Cal. July 18, 2018). WL 254303, at *17 (N.D. Cal. Jan. The Johnson court explained 26, 2021).

4 CALIFORNIA LABOR & EMPLOYMENT LAW REVIEW VOLUME 35, NO. 3 18. Id. 26. Olson v. State of California, 2020 classified as employees, and 19. See, e.g., Landgraf v. USI Film WL 905572, at *14 (C.D. Cal. Feb. the issue was whether the Prods., 511 U.S. 244, 265 (1994). 10, 2020), appeal pending No. 20- franchisor could be held liable 20. James, 2021 WL 254303 at 17-18. 55267 (9th Cir.). as a joint employer. In Jan-Pro, 21. Josh Eidelson, The Gig Economy 27. Id. the plaintiffs were classified is Coming for Millions of American 28. California Trucking Ass’n v. Becerra, Jobs After California’s Uber Lyft 433 F.Supp. 3d 1154, 1164- as independent contractors Vote, Bloomberg Law, Feb. 17, 1165 (S.D. Cal. 2020), appeal and alleged that the defendant 2021, https://www.bloomberg. pending, No. 20-55106, 20-55102 franchisor was responsible for com/news/features/2021-02-17/ (9th Cir.). their misclassification, despite the gig-economy-coming-for-millions- 29. Id. See 49 U.S.C. § 14501. fact that the plaintiffs contracted of-u-s-jobs-after-california-s- 30. See, People v. Superior Court, 57 directly with intermediary uber-lyft-vote; Edward Ongweso Cal. App. 5th 619 (2020). “master franchisees.” Jr., Uber is Expanding Its War on 31. “Fissured employment” occurs 36. International Franchise Ass’n et al. Labor to Canada With a Prop 22 when large hiring entities shift Clone (“Ongweso”), Vice, March 11, labor costs and liabilities to v. State of California et al., Case 2021, https://www.vice.com/en/ smaller, intermediate employers. No. 3:20-cv-02242 (S.D. Cal. Nov. article/88apja/uber-is-expanding- See David Weil, Enforcing Labor 17, 2020). its-war-on-labor-to-canada-with- Standards in Fissured Workplaces: 37. 16 C.F.R. §§ 436.1-436.11. a-prop-22-clone. The US Experience, The Economic 38. 16 C.F.R. §§ 436.2, 436.9. 22. Ongweso, supra, n. 21. and L abor Rel ations Review 39. Martinez v. Combs, 49 Cal. 4th 35 23. The “Pro Act,” Protecting the v. 22, no.2, pp. 36–37 (July (2010). Right to Organize Act 2021, H.R. 2011), available at http://www. 842, 117th Cong. (2021-2022), fissuredworkplace.net/assets/ 40. Curry v. Equilon Enters., LLC, 23 recently passed in the House of Weil.Enforcing-Labour-Standards. Cal. App. 5th 289 (2018), as Representatives, adopts an ABC ELRR-2011.pdf. modified on denial of reh’g (May test for the NLRA. Another bill 32. Dynamex, 4 Cal.5th at 963 (citing 18, 2018), review denied (July 11, introduced by Sen. Patty Murray, Awuah v. Coverall North America, 2018), and Henderson v. Equilon the Worker Flexibility and Small Inc.,707 F.Supp.2d 80, 82 (D.Mass. Enters., LLC, 23 Cal. App. 5th 289 Business Protection Act, H.R. 2010); Coverall N. America v. Div. (2018), review denied (Feb. 11, 8375, 116th Cong. (2019-2020), of Unemployment, 447 Mass. 852, 2020). would adopt the ABC test for 857 (2006). the FLSA. 33. See, e.g., Coalition Letter to 41. Curry was decided just days 24. Independent Contractor Status California State Legislature, before California Supreme Under the Fair Labor Standards IFA, Aug. 27, 2019. The IFA Court issued its decision in Act; Withdrawal, 86 Fed. Reg. 47 also attempted and failed to Dynamex; the plaintiff promptly (March 12, 2021) (29 CFR Parts obtain a legislative carve-out 780, 788 and 795). petitioned for rehearing but for franchise agreements from 25. Formerly known as FLSA2019- the court denied the petition the Massachusetts ABC test 6, the U.S. Department of Labor, and instead issued a modified in 2009. See Mass. H.B. 1844 Wage and Hour Division, has (186th Session). opinion (without briefing from removed an earlier opinion letter 34. Vazquez v. Jan-Pro Franchising Int’l, the parties), which added a brief that interpreted gig economy Inc., 986 F.3d 1106, 1124 (9th Cir. section containing only a cursory workers who offer services 2021). mention of Dynamex. Curry, at in a virtual marketplace as 35. See, People v. Superior Court of independent contractors. That 314, 316. Henderson merely L.A., 57 Cal. App. 5th 619 (2020). letter can no longer be found followed Curry, considering itself on the Department’s website. Another panel in the Ninth bound in light of the close factual See Benesh, Department of Labor Circuit held that Dynamex did not similarity of the cases. Henderson Withdraws Gig Economy Opinion apply in a wage and hour dispute at 1121. Letter that Supported Independent brought against a franchisor. 42. Depianti v. Jan-Pro Franchising Int’l, Contractor Classification, JDSupra. See Salazar v. McDonald’s Corp., Inc. 465 Mass. 607 (2013), was com, Feb. 23, 2021, at https:// 939 F. 3d 1051 (9th Cir. 2019), www.jdsupra.com/legalnews/ as amended upon denial reh’g, favorably cited in Dynamex, 4 Cal. department-of-labor-withdraws- 944 F. 3d 1024. However, in 5th at 595-96. gig-2161674/. that case, the plaintiffs were 43. Vazquez, 986 F.3d at 1124.

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