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November 19, 2021

The Ongoing Battle of Worker Classification

By Shannon Liss-Riordan and Anastasia Doherty

Since the California Supreme Court issued its landmark decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018), adopting the Massachusetts version of the ABC test for determining independent contractor misclassification, a heated battle has emerged over this worker-friendly test.

The ABC test makes it more difficult for employers to justify classifying workers as independent contractors, as it creates a presumption of employee status and places the burden on the employer to meet each of the three ABC prongs. Prong B is particularly difficult for many companies to satisfy, as it requires the employer to prove that the worker performs services outside its usual course of business.

The gig economy, which has built its business model off of classifying workers as independent contractors, sees the ABC test as a particular threat. Courts have recognized that companies like Uber and Lyft cannot meet Prong B to justify classifying their drivers as independent contractors. See, e.g., People v. Uber Technologies, Inc. 56 Cal.App.5th 266 (2020) (upholding preliminary injunction ordering Uber and Lyft to classify their drivers as employees).

AB 5 versus Prop 22

After Dynamex, the California legislature codified the ABC test through Assembly Bill No. 5 (“AB 5”), see Cal. Lab Code 2775 et seq., which went into effect January 1, 2020. A.B. 5 expanded the application of the ABC test, with the exception of specific legislative carve-outs.

Since the legislature refused to carve-out “gig-economy” rideshare and delivery drivers, companies including Uber, Lyft, DoorDash, Postmates and Instacart spearheaded a ballot initiative, Proposition 22 (“Prop 22”). The ballot measure, which cost proponents more than $200 million, passed and became effective December 16, 2020, see Cal. Bus. & Prof. Code § 2750 et seq. Under Prop 22, certain “app-based” drivers are deemed independent contractors, so long as certain specific wage and hour protections are provided for the drivers.

The passage of Prop 22 does not provide these companies with an ironclad defense, however, to misclassification claims. A California Superior Court struck Proposition 22 down as unconstitutional, a ruling that is now on appeal. See Castellanos v. State, 2021 WL 3730951 (Cal. Sup. Ct. Aug. 20, 2021).

Even if Prop 22 survives legal challenges, in order to take refuge in the law, gig companies will still have to prove that they are providing app-based drivers with the promised Prop 22 protections, such as health care benefits, 120% of minimum wage for “engaged time” (while drivers are actively transporting riders or making deliveries), and some expense reimbursement. See James v. Uber Techs., Inc., 2021 WL 254303 (N.D. Cal. Jan. 26, 2021). Already, for example, a report released by Rideshare Drivers United found that most California appbased drivers are not receiving the health care benefits promised by Prop 22. (See https://nationalequityatlas.org/prop22.)

In any event, there remain a number of pending independent contractor misclassification cases where drivers’ employee status will still be litigated under the ABC test for the time period pre-dating the enactment of Prop 22. While gig companies have argued that Prop 22 abates AB 5 for the period prior to the ballot initiative’s passage, the Ninth Circuit recently rejected that argument in Lawson v. GrubHub, No. 18-15386 (9th Cir. Sept. 20, 2021).

Gig economy companies have made clear they intend to try to expand Prop 22 into other states, such as Colorado, Illinois, New York and New Jersey. In Massachusetts, a ballot initiative campaign has already begun, as well as an attempt to introduce similar legislation (Mass. H.B. 1234). A coalition of workers and civil rights advocates are organizing to oppose this effort, and a majority of the Massachusetts State Senate has announced its opposition to the proposal.

Meanwhile, this debate is also being watched on the federal level. The Protecting the Right to Organize Act, H.R. 842 (The “PRO Act”), would adopt the ABC test for purposes of determining employee status under the National Labor Relations Act, thus expanding the ability of workers to form unions, despite their classification by employers as independent contractors. Similarly, the Worker Flexibility and Small Business Protection Act, S. 4738, introduced by Senator Patty Murray (D-WA), would adopt the ABC test for purposes of the Fair Labor Standards Act, would make independent contractor misclassification a stand-alone violation and would prohibit compelled arbitration of claims under the Act. In addition to these legislative proposals, much attention is now on how the Department of Labor under the Biden Administration may strengthen protection and enforcement of current federal standards against misclassification; some have called for the DOL to adopt an ABC test, even without a statutory underpinning, just as the California Supreme Court did in Dynamex.

Legal Challenges to AB 5

Some companies have tried to avoid the ABC test by raising legal challenges to overturn or limit the application of AB 5. Gig economy companies have challenged AB 5 in court, arguing that the bill violates both drivers’ and the companies’ constitutional rights. So far that attempt has not been successful, see Olson v. State of California, 2020 WL 905572, at *14 (C.D. Cal. Feb. 10, 2020), but an appeal is pending, No. 20-55757 (9th Cir.).

The International Franchise Association (IFA) has also brought legal challenge to the application of the ABC test, arguing that franchises may not be subject to the test because it is preempted by the FTC Franchise Rule. See International Franchise Ass’n v. State of California, Case No. 3:20-cv-02242 (C.D. Cal.). Previously, the Ninth Circuit held that the ABC test would apply in a case in which franchisees challenged their misclassification as independent contractors. See Vazquez v. Jan-Pro Franchising Int’l, Inc., 986 F.3d 1106 (9th Cir. 2021). The Massachusetts Supreme Judicial Court is currently considering whether the ABC test would apply to franchisees, on a certified question from the First Circuit. See Patel v. 7-Eleven, Inc., 8. F.4th 26 (1st Cir. 2021).

Another frequent issue being litigated is whether the ABC test applies to determine whether a defendant is a joint employer. In Dynamex, the California Supreme Court adopted the ABC test to define who is an employee under the “suffer or permit” prong of the employment test set forth in Martinez v. Combs, 49 Cal.4th 35 (2010). Several courts in California have held that, notwithstanding that Martinez itself was a joint employment case, the ABC test does not apply to the joint employment question.

See Curry v. Equilon Enterprises, LLC, 23 Cal.App.5th 289 (2018); Henderson v. Equilon Enterprises, LLC, 40 Cal.App.5th 1111 (2019); Medina v. Equilon Enterprises, LLC, 68 Cal.App.5th 686 (2021) (but reversing holding that Shell was not joint employer of gas station workers, even if its control of the workers was “indirect”). Meanwhile, the Massachusetts Supreme Judicial Court is also now considering whether the ABC applies to the question of joint employment. See Misra v. Credico, SJC-13106.

In short, the battle being waged in (and out) of California courtrooms regarding the worker-friendly ABC test is a closely watched story that may portend how the law around independent contractor classification may develop across the country in the coming years.

Shannon Liss-Riordan

Lichten & Liss-Riordan, P.C.

Shannon Liss-Riordan is a co-founding partner at Lichten & Liss-Riordan, P.C. in Boston. Shannon is widely recognized as one of the nation’s top plaintiffs’ class action employment lawyers and has reshaped industries through her pioneering successes representing tipped workers, employees misclassified as independent contractors, and low wage workers.

Anastasia Doherty

Lichten & Liss-Riordan, P.C.

Anastasia Doherty is an associate at Lichten & Liss-Riordan, P.C. Anastasia represents workers asserting wage-and-hour and individual discrimination claims against their employers and she is currently involved in a number of cases in which employees have been misclassified as independent contractors.

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