Reprinted with permission of the California Lawyers Association and the California Labor & Employment 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 Uber 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 statutes 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 case law 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.