AB 5 Update: Joint Employment, Retroactivity, and Implementation Challenges

As employers in the Golden State attempt to prepare for the brave new world—courtesy of AB 5—that will greet them on New Year’s Day, federal and state courts in California continue to grapple with the scope and purpose of the 2018 groundbreaking Dynamex decisionIn Dynamex, the state’s highest court adopted the broad “ABC Test” to determine whether a worker is properly classified as an independent contractor or as an employee for purposes of California’s wage orders.  AB 5 codifies and expands the scope of the Dynamex holding to state labor law more broadly.  In recent days, courts have issued decisions addressing fundamental questions relating to the application Dynamex.  

Joint Employer Status.  On October 8, 2019, the California Appeals Court for the First Appellate District held that Dynamex is limited in its application to whether a worker is misclassified as an independent contractor, and is not intended as a broad test of “joint employment” for purposes of wage law liability.  In Henderson v. Equilon Enterprises LLC, the court examined whether the multi-national owner of gasoline stations worldwide was the “joint employer” of a station manager employed by the gas station’s operator.  The court rejected the application of Dynamex, concluding that the case “does not fit analytically and was not intended to apply to claims of joint employer liability.”  As the court explained in its decision, at bottom, Dynamex was intended to address misclassification of workers as independent contractors, and the policy concern that misclassified workers are unprotected under state wage and hour laws, while “good actors” that properly classify their workers as employees are put at a competitive disadvantage.  Where, as here, there was no dispute that the station manager was a statutory employee of the gas station operator (and thus already protected under state law), those policy concerns were not at issue, and the application of Dynamex would be inappropriate.  Given these facts, the court found the appropriate analysis to be the traditional, and more time-tested, approaches for determining joint employer status.

Retroactivity.  On the same day, the Court of Appeals for California’s Second Appellate District became the second court to analyze whether the Dynamex decision is retroactive and conclude that it is.1  In Gonzales v. San Gabriel Transit, Inc., the appeals court determined that Dynamex applied retroactively to claims by drivers for a transportation company that they were misclassified as independent contractors and thus entitled to damages under state wage and hour laws.  The court remanded the case to the lower court to determine which of the numerous wage and hour claims brought by plaintiffs were cognizable under Dynamex and subject retroactively to the ABC test.  Earlier this year, the U.S. Court of Appeals for the Ninth Circuit became the first court to hold that Dynamex applied retroactively, causing confusion and much consternation for employers state-wide.  The Ninth Circuit subsequently withdrew its opinion, and instead asked the Supreme Court of California to decide whether Dynamex applies retroactively, or is prospective in application only.  The question is currently certified to the state supreme court, which is not required to provide an answer, but is widely expected to do so.  AB 5 also purports to answer the question of retroactivity, indicating that new obligations are effective prospectively, but the exceptions to the ABC test apply retroactively.

Implementation Challenges.  In the aftermath of AB 5’s enactment, stakeholders and employers across California continue to attempt to understand the bill’s application and impact, particularly with respect to the numerous specific and non-specific exemptions contained in the bill.  The bill’s exception purporting to apply to “business to business” contracts continues to raise more questions than it answers, as do the contours of whether particular professional services contracts are meant to be excluded.  Prior to the bill’s enactment, a number of high-profile “gig” economy companies jointly pledged $90 million to challenge the law through the ballot referendum or initiative process—the status and fate of that effort remain unclear.  Finally, AB 5’s supporters in the state legislature, prior to the bill’s enactment, conceded that it was at best imperfect, and that lawmakers would probably spend the next few years trying to fine-tune or fix the statute.  Employers, meanwhile, will have to comply with its provisions starting January 1, 2020.

In short, the legal landscape around Dynamex, AB 5, joint employment, and worker misclassification under California state law continues to change and evolve on an almost day-by-day basis.  Littler will continue to report on relevant developments as they occur.

See Footnotes

​1 Another California state court had previously reached the same conclusion, but did not engage in any detailed analysis insofar as the defendant in that case did not argue that Dynamex did not apply.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.