AB 5 and AB 71: CA Legislature Dukes It Out Over Dynamex and Borello

The battle between Dynamex and Borello continues. Two competing bills – Assembly Bill 5 (“AB 5”) and Assembly Bill 71 (“AB 71”) – each seek to codify the respective worker classification tests. On May 29, 2019, the California State Assembly overwhelmingly passed AB 5, a bill seeking to codify Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which adopted the three-factor “ABC” test to determine a worker’s classification for wage order claims. Now the bill is headed to the state Senate. Meanwhile, AB 71, a bill seeking to codify S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, has thus far not enjoyed the same success.

The Dynamex decision left several questions unanswered, including the degree to which its adoption of the ABC test applies across industries and claims.[1] AB 5 aims to clarify the decision’s scope by applying the ABC test to most provisions of the Labor Code and Unemployment Insurance Code. In doing so, AB 5 would expand the reach of Dynamex beyond wage order claims to paid leave, workers’ compensation, healthcare subsidies, and unemployment insurance claims.

Proponents of AB 5, including the California Labor Federation, maintain that it will reduce poverty, protect workers’ rights, and generate tax revenue for the state. Critics argue, however, that AB 5 will threaten workers’ ability to design flexible schedules and earn important supplemental income. They assert that businesses could see expenses increase by as much as 30% if AB 5 is passed into law. To defray these costs, companies may raise prices, limit hours, or relocate work to other states and countries.

Criticisms of AB 5 have not gone ignored. Since first being introduced in December 2018, AB 5 has evolved. Lawmakers amended the bill to exempt certain classes of workers who stand to lose from being reclassified as employees. Instead, the Borello test will determine their status. These exemptions cover several categories of skilled professionals, such as insurance and real estate agents, lawyers, architects, accountants, dentists, and hairstylists. And critics are still pushing to expand the list of exemptions even further so that it covers short-term workers and others who want to control their own schedules.

AB 71, a countermeasure to AB 5 that would effectively overrule Dynamex, aims to codify the more flexible, multifactor worker classification test in Borello. This eight-factor test emphasizes the employer’s right to exercise control over the worker. The California Chamber of Commerce as well as the state’s business and tech communities support AB 71. However, AB 71 lacks the momentum of AB 5, failing to progress through the State Assembly. Now, it is once again awaiting approval from the Assembly Committee on Labor and Employment.

Orrick will continue to track the evolution of AB 5 and AB 71. For the latest employment law updates, subscribe to the Orrick Employment Law and Litigation Blog.


*This post was drafted with contribution from Ashley Luo, law clerk.

[1] Since Dynamex, California state courts have grappled with issues left open by the Dynamex court. For more on the courts’ reading of the case, see Orrick’s blog posts on retroactivity, joint employment, and non-wage order claims.