On Monday night, the California legislature passed Assembly Bill 2257 (AB2257), a clean-up bill to Assembly Bill 5 (AB5).  Under AB 2257, musicians, fine artists, freelance writers, photographers, and translators would be among those getting exemptions from AB5 to continue working as independent contractors, rather than as employees.  The bill is expected to be signed into law by Governor Newsom later this month.   AB 2257 would have significant implications for specific industries, including:

  • Eliminate submission cap for freelance writers and photographers (current rules require freelancers who contribute more than 35 submissions to be classified as an employee);
  • Exempt underwriting inspections and other services for the insurance industry from the ABC test;
  • Exempt certain occupations in connection with creating, marketing, promoting, or distributing sound recordings or musical compositions from the ABC test;
  • Create exceptions for licensed landscape architects, specialized performers teaching master classes, registered professional foresters, real estate appraisers and home inspectors, and feedback aggregators.

Notably, AB 2257 does not provide exemptions for workers in the rideshare industry such as Lyft and Uber.  You can find an update on the latest in the rideshare industry here.

As we blogged in December and April, Governor Gavin Newsom signed AB5 into law in September 2019.  The new law expanded the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court.  Specifically, it applied Dynamex’s “ABC Test” to both California Wage Orders and the California Labor Code, creating the presumption that workers in California are employees, not independent contractors – unless an employer can satisfy a three pronged test known as the ABC test.

We will provide you with updates on AB5 as the landscape continues to evolve in the coming weeks and months.

Written by Sharon Shaoulian

California’s music industry finally came to an agreement with lawmakers on pending amendments to California’s Assembly Bill 5 (AB5).  The amendments would provide relief to professionals in the music industry, including recording artists, musicians, composers, songwriters and vocalists, amending the prior language in AB5 that created hurdles for self-employed music professionals to obtain work.

To provide some background, Governor Gavin Newsom signed AB5 into law in September 2019.  The new law expanded the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court. Specifically, it applied Dynamex’s ABC Test to both California Wage Orders and the California Labor Code, creating the presumption that workers in California are employees, not independent contractors – unless an employer can satisfy a three pronged test “ABC test.”

  • That the worker and his performance of the work are free from the control and direction of the hiring entity, either by contract or in fact;
  • That the worker performs work outside the usual course of the hiring entity’s business; and
  • That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that of the work performed.

The legislature authorized exemptions from the ABC test for specified industries; yet many in the music industry do not fall into any of the exemptions.

Further, although AB5 was initially designed to protect the rights of workers, as changing their status from independent contractors to employees would afford them benefits they otherwise would not have, the law actually adversely affected many self-employed workers, like musicians.

For example, instead of a musical venue paying musicians and artists by 1099, under AB5 many performers are deemed employees with pay by W2 and benefits like Social Security, disability, workers’ compensation, and unemployment insurance.  Moreover, artists now have to pay their own backup artists and session musicians as employees and provide the same benefits.  Dissatisfaction with this arrangement spread, making it difficult for many in the music industry to obtain work.  The music industry began lobbying the state legislature for an exemption to AB5 as other industries have done.

The lobbying effort was successful.  The new pending amendments will provide exemptions for singers, songwriters, composers, recording artists and other music workers, and states that musicians will again only need to meet the less burdensome Borello test, applied by California courts prior to AB5, in order to determine if an individual is an employer or an independent contractor.  Under this test, the primary test of an employment relationship is whether the person for whom services are rendered has “the right to control the manner and means of accomplishing the result desired.”  This test would allow most music professionals to operate as independent contractors once more.

Of course, if a musician’s work involves substantial control from its hiring entity, such a musician will continue to receive benefits under AB5.  The pending amendments will be considered by the Legislature when it reconvenes.  If passed, this change will go into effect on January 1, 2021.

How will AB-5 impact franchise relationships in California?  What steps can franchisors take to best protect their interests in California in a post-Dynamex, post AB-5 landscape?  These are some of the questions Tami McKnew and I will be answering in a reprise of a webinar we first presented on October 28, 2019.  Join us on Wednesday, November 20, 2019.  It’s free and you can RSVP here.

The news on AB-5 has been fast and furious in the past couple of months.  First, was the summary of AB-5 and the new ABC standard to determine whether a worker is an independent contractor or employee.  Then were concerns about what the law did not say, and how it could be interpreted including in the franchise context.  Then came a bit of good news when the 9th Circuit ruled that the ABC test did not apply to a franchise employees, and did not create a joint employment relationship with the franchisor.

But there are still many unanswered questions.  Will any other businesses successfully lobby for an exemption to AB-5 before January 1st?  What will happen with the ballot measure set forth by technology companies?  How much of the law will be retroactive, and what exactly does that mean?  And strategically, what should businesses in California do given this legal landscape, especially if some or all of their California work force is comprised of independent contractors?

If you have a franchise in California or are a franchisor and operate in California, or you are just interested in this topic, please join me and Tami to delve into these issues on Wednesday, November 20th at Noon Pacific Time.  We hope to provide some clarity, or at least some viable options to mitigate risk.

Think back pre-Covid, the end of 2019, a law was set to take effect in California that banned mandatory arbitration, and imposed criminal penalties on employers for mandating arbitration.  This law (AB51) also prohibited the often used opt-out clauses, which actually are allowable under current California law and rebut procedural unconscionability under the Armendariz standard.

AB51 was stopped at the last minute (by a temporary restraining order at year end 2019), then an injunction in January 2020 in the US District Court.  So mandatory arbitration remained legal.  Many felt this ruling was correct, that AB51 conflicted with the Federal Arbitration Act, and was therefore unconstitutional.

Fast forward to today, as if operating in California weren’t hard enough, the 9th Circuit has made it more complicated by ruling that AB51 is only partially unconstitutional (as to the criminal penalties for existing agreements) (Chamber of Commerce v. Bonta).  However, as to imposing arbitration only when both the employer and the employee agree, well that may be fine.  So, back to the US District Court the case goes.

Given the vigorous dissent (and the circuit split), maybe the 9th Circuit will rehear the case en banc, or the US Supreme Court will take up this issue.  But in the meantime, depending on their risk tolerance, California employers are faced with a panoply of options on what to do with their current mandatory arbitration agreements (or their existing arbitration agreements with opt outs).

A conservative option is to do away with all mandatory arbitration immediately or arbitration agreements that require opt-out, and make them all truly voluntary both going forward for new hires and for your current workforce.  But oh my, will this have an impact in that many workers will not voluntarily sign.

A less conservative option is to wait-and-see if this decision is stayed pending further appeal.  Also perhaps to reconsider your approach going forward while all of that is pending (such as changing your protocol for new hires).

Which decision is right for your business is a fact specific inquiry to discuss with your employment counsel!

Post updated on September 18, 2021.  Please see this Alert for a more detailed analysis of this ruling and of employer options in response.    

When it comes to employment laws, where California goes, the rest of the country often follows.  Now that we have a Vice President from the golden state, we can certainly expect more California-centric influence in Washington DC.

Curious about what that means?  A higher federal minimum wage?  More laws like AB5 to classify more workers as employees instead of contractors?  More union activity?  It is all on the table for sure.

Fox Rothschild partners Steve Ludwig and Bob Nagle will explain what to expect in a Webinar on February 5th at 9 am pacific time.   The webinar is free and you can register here.

On November 3, 2020, California voters passed Proposition 22, an exemption from AB5 for app-based drivers and couriers who use personal vehicles/transportation to provide on-demand services.  As detailed in previous posts here and here, Governor Gavin Newsom signed AB5 into law in September 2019.  Essentially, Proposition 22 filled a void caused by legislative inaction, and created a hybrid model between contractors and employees; essentially a “contractor-plus limited benefits” model.

AB5 expanded the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court.  Specifically, it applied Dynamex’s “ABC Test” to both California Wage Orders and the California Labor Code, creating the presumption that workers in California are employees, not independent contractors – unless an employer can satisfy a three pronged test known as the ABC test.  The ABC test presumes workers are employees, and not independent contractors, unless the employer can establish that: A) the company does not control or direct what the worker does, either by contract or in actual practice; B) the worker performs tasks outside of the hiring entity’s usual course of business; and C) the worker is engaged in an independently established trade, occupation, or business.

Under Prop 22, drivers offering services for rideshare and delivery companies are now exempt from the ABC test.  However, rideshare and delivery companies are now required to provide drivers certain benefits, including the following:

  • Minimum Wage: Rideshare and delivery companies must pay 120% of the local minimum wage for each hour a driver spends driving, but not time spent waiting (note that there are very complicated calculations for that minimum wage when driving through cities with different local wages);
  • Stipend Towards Health Insurance: For drivers who usually work more than 15 hours per week (waiting time not included), companies are now required to help pay for their health insurance;
  • Rest Time: Companies must limit app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted six hours;
  • Hazard Insurance: Provide occupational accident insurance to allow drivers disability payments of 66% of their average weekly earnings during the previous four weeks before the injuries were suffered for upwards of 104 weeks; and
  • Other Requirements: Prohibit workplace discrimination and: (1) develop sexual harassment policies; (2) conduct criminal background checks; and (3) mandate safety training for drivers.

Notably, Prop 22 can only be amended if proposed changes are consistent with the new law’s purpose and if seven-eighths of lawmakers favor the amendment.

The passage of Prop 22 will likely cause other industries to campaign for independent contractor classification with voters or with the state legislature, especially given the margin in which Prop 22 passed by.   Alternatively, other industries may pursue similar models as their rideshare counterparts in order to argue that they also fall under the new law set forth in Prop 22.

As we discussed here, other industries have already been able to gain exemptions to AB5.  For example, earlier this September, the California legislature passed Assembly Bill 2257, which permitted musicians, fine artists, freelance writers, photographers, and translators exemptions from AB5 to continue working as independent contractors, rather than as employees.

Stay tuned as we continue to provide you with updates on AB5 as there will be sure to be even more changes to the law in the coming weeks and months.

California is known for new employment laws that then trickle out to the east coast, the northwest, and eventually nationwide.  Think back to the mandate for sexual harassment prevention training and the roll-out of paid family leave in 2004, and the state-wide statutory sick leave mandate in 2015.

Yet, with new laws also come new court challenges, and several trend-setting California laws are totally or partially on hold pending further court proceedings.  Here are some notable examples:

Prohibition on Mandatory Arbitration (AB51)

As reported here, enforcement of AB51 has been blocked by a Temporary Restraining Order (now extended), with another hearing set for January 31st.  Employers hiring before month-end must decide whether to modify current arbitration agreements to make them voluntary, or to wait and see what happens on the 31st and thereafter (and risk that current arbitration agreements that include opt-out provisions or are mandatory do not meet AB51’s standard if upheld).

Assault on Independent Contractor Agreements (AB5)

As reported here, there are at least three current challenges to AB5 by specific industries.  First, independent owner operators won in a state case which held that AB5 should not render them employees, given federal laws governing interstate commerce; that ruling will be appealed.  And other truck drivers are fighting for a Temporary Restraining Order in federal court.  Second, freelance writers, editors, still photographers, and visual journalists filed a lawsuit to address the limited scope exemption in AB5 (35 submissions per client per year) arguing it is arbitrary and unconstitutional (the TRO in that case was denied, and the hearing on the injunction is set for March).  And third, on-demand companies have also filed a lawsuit arguing that the law is poorly drafted, has too many exemptions, and does not accomplish the intended goal of protecting workers (including the two individual named plaintiffs that chose to work as independent service providers and don’t want to be employees).

Challenge to Law Mandating Women on California Boards of Directors (SB 826)

In September 2018, the California Legislature passed SB 826 which set forth requirements for California based public companies to have a least one female director on their Board by the end of 2019 or face a fine of $100,000.  Requirements increase by the end of 2021 based on Board size.  A male shareholder of a Delaware corporation headquartered in California with an all-male Board filed a lawsuit challenging the “quota law” as unconstitutional.

Bold laws invite court challenges, and time will tell how it all shakes out once the lawsuits work their way through the system.  In the meantime, employers must balance the risks of non-compliance with the possible rewards of litigation victories invalidating all or parts of these laws.  Stay tuned to our fabulous blog to find out what happens next.

If you were hoping that AB-5 (the CA statute codifying the ABC standard into widespread law) would be held invalid, enjoined, or would just fall off a cliff, it is time to face reality.  AB-5 is alive and well, and effective January 1, 2020.  That means any California employer who still relies on independent contractors as part of its workforce should be hustling to address that issue if they haven’t already.

Yes, some gig economy companies are planning a ballot initiative, but that won’t be on the ballot until November 2020.  Update:  On-demand companies also filed a lawsuit to allow workers to remain as independent service providers.

And there is a glimmer of hope for truck drivers, given that motor carriers and individual owner-operator truck drivers filed a motion for preliminary injunction to cease enforcement of AB-5 as to just them, which was temporarily granted on December 30, 2019, and is set for further hearings in USDC, Southern District.

Update:  And freelance writers and journalists also filed a lawsuit just before year end to address the limited exception written into the law capping content submissions to 35 per publisher per year.

But everyone else doing business in California is left with limited options, including:

  • Full compliance which may include:
    • Converting workers to employees
    • Taking steps to ensure that all contractors meet one of the funky enumerated exemptions and have an updated contractor agreement
    • Retaining a reputable staffing company to employ workers (especially for businesses that are not set up to do a proper payroll and handle the myriad of legal requirements necessary for employees
  • Taking the risk of misclassification and hoping your business won’t be a target
    • Note, if you have had any union activity, watch out – you are likely on the target list!
  • One of the first two options, along with a lobbying strategy to try to get your business listed as another exemption

My franchise partner, Tami McKnew, and I have been presenting a series of webinars on AB-5 and its impact on the franchise system.  Notably, there is no exemption in AB-5 for franchisees.  Also notably, many franchisees are women or minority owned, and actually like the freedom to be self-employed.  In fact, 35% of franchise owners are women.  So one of the points Tami and I have been stressing, is that if you are a franchise owner in California, and you’d like to retain that status, then contact your legislators and tell them!  The voices of business owners can hold a lot of weight. Indeed,  Assembly Member Gonzalez, AB-5’s author, appears open to such efforts come January (as she was before the bill passed), but only time will tell if any will be successful.

In the meantime, one thing is for sure.  AB-5 will keep us employment lawyers busy in the coming year.

Our Labor & Employment team has been busy this fall! As loyal readers, your inboxes have been filled with our updates on all the changes to California employment laws.  This legislative session ended on October 14th, so we thought it would be helpful to recap the changes you should have on your radars.   These new laws will take effect January 1, 2020, unless otherwise noted.  Here are some of the highlights, with links to more in-depth information as applicable:

10) Extension of Statute of Limitations for CA Discrimination Claims

AB 9 extends the time a complainant has to file a complaint under the Fair Employment and Housing Act (“FEHA”) from one year to three years.  While enacted in response to the #MeToo movement, this bill affects all claims of employment discrimination under FEHA, not just harassment claims.

9) Expansion of Race Discrimination to Include Hairstyles

SB 188 changes the definition of “race” in FEHA to include hair texture and protected hairstyles, specifically including “braids, locks and twists.” This prohibition, which is detailed here,  may impact policies on dress codes or grooming standards.

8) Prohibition on Mandatory Arbitration Agreements

AB 51 bars employers from requiring arbitration agreements as a condition of employment.  It also prohibits retaliation against an employee who refuses to sign an arbitration agreement.  My colleagues blogged in greater detail about AB 51 here, including the likelihood that it will be preempted by the Federal Arbitration Act.

7) Remedies for Breach of Arbitration Agreements

SB 707 provides both consumers and employees  remedies when a drafting party fails to pay arbitration fees and costs in a timely manner.  Drafting parties who neglect to pay fees owed within 30 days of the due date may lose the chance to compel arbitration or may be subject to monetary or evidentiary sanctions.

6) Prohibition on “No Rehire” Provisions

AB 749 prohibits parties to an employee settlement agreement from entering into an agreement to restrict the employee’s ability to work.  In the vein of non-compete enforceability, employers may no longer add a so-called “no rehire” provision to settlement agreements, unless the employer has made a good faith determination that the employee engaged in sexual harassment or assault. This bar applies to parent, subsidiaries and affiliates of the settling party.  Read more from our blog here.

5) Additional Paid Family Leave

SB 83 increases benefits under the state’s paid family leave program (“PFL) from 6 weeks to 8 weeks of subsidized time off, beginning July 1, 2020.   It also establishes a task force to review additional increased benefits for 2021.

4) Additional Training Requirements

AB 241 and AB 242 require implicit bias training for physician, nurses, surgeons, lawyers and court staff.  Medical staff training requirements would not take effect until 2023, whereas legal training becomes effective in 2022.  SB 778 gives employers a reprieve until January 1, 2021 for mandated sexual harassment training of all employees.

3) Detailed Lactation Accommodations

SB 142 mandates detailed lactation accommodations on all California employers.  Specifically, a lactation room must not be a bathroom and must contain a surface for breast pump and personal items, a place to sit, as well as electricity, extension and charging cords.  The employee must also have access to a refrigerator or cooler and a sink with running water.

2) California Consumer Privacy Act Changes

AB 25 exempts employers from compliance with many of the laws requirements regarding collection of personal data of employees and applicants through 2020. You can find more information about the CCPA here.

1)  Restrictions on Use of Independent Contractors

Last, but certainly not least, AB 5 significantly changes which workers or businesses can be classified as independent contractors under the Labor Code and Wage Orders.  We have reviewed the changes here, and will continue to update you on changes and issues as they arise in our practice.

As always, our team is here for guidance (or just to commiserate) on these new laws.

With the passage of AB 51, which we discussed in yesterday’s post, it’s understandable for employers and HR professionals to be asking if mandatory workplace arbitration still makes sense. After all, according to the new bill set to take effect on January 1, 2020, requiring an employee to sign a pre-dispute arbitration agreement or implementing an arbitration program potentially exposes employers and HR professionals to misdemeanor liability. So is it time to abandon mandatory employment arbitration? Not in my opinion, but let’s look at the pros and cons:

The Pros

  1. There are no runaway, emotion-fueled jury verdicts. Arbitration awards can be high, but they tend to be more closely rooted in reality.
  2. The procedures (including discovery) are usually more streamlined than cases in court.
  3. Although plaintiffs can still publicize whatever they want, arbitration hearings are generally more private than court trials.
  4. The cases settle more cheaply. This is a function of item 1 above. Employees and their attorneys can’t base their negotiation position on the fact that, if they just get before a jury, they have a shot at a windfall.
  5. Cases usually resolve more quickly in arbitration than in court.
  6. The attorneys’ fees are usually lower.
  7. If you win, the other side’s opportunity to appeal is very limited.
  8. Since the Supreme Court decided Epic Systems Corp. v. Lewis in 2017, it is now clear that you can require employees to waive the right to pursue class actions.

The Cons

  1. It’s easier for unrepresented parties to bring weak claims.
  2. Forum and arbitrator costs are higher and, in California and many other jurisdictions, the employer bears the vast majority of those costs.
  3. While Epic Systems resolved the issue of class action waivers, the California Supreme Court has said “no” to mandatory arbitration of Private Attorney General Act claims. Eventually, the U.S. Supreme Court may need to address that issue.
  4. As our friends at Wage & Hour – Developments and Highlights have pointed out, plaintiffs’ lawyers who previously filed class actions may now start filing multiple individual arbitrations for wage and hour violations, which could subject employers to burdens and expenses that rival class actions.
  5. As part of the #MeToo movement, there have been concerted attempts by some to argue that arbitration agreements protect sexual harassers. However, any remedy that an employee can recover in court against a harasser is available to the same extent in arbitration.
  6. If you lose at arbitration, your opportunity to appeal is very limited.
  7. It can be harder to get cases out on dismissal or summary judgment.
  8. While it hasn’t been my experience, some say that arbitrators tend to “split the baby.”
  9. AB 51, set to take effect on January 1, 2020, prohibits the agreements and makes attempts to enforce them unlawful — even criminal (a misdemeanor).

So what are employers to do?

In AT&T Mobility LLC v. Concepcion and other cases, the U.S. Supreme Court has clearly stated that the Federal Arbitration Act preempts state laws that “stand[] as an obstacle to the accomplishment and execution of the full purpose and objectives of [the FAA].” That’s why Governor Newsom’s predecessor, Jerry Brown, kept vetoing bills like AB 51. That’s why AB 51 doesn’t ever use the word “arbitration” other than noting situations in which arbitration is allowed. It attempts to dance around that by talking about waiver of certain rights, forums, or procedures. Still, the intent is apparent and there will undoubtedly be legal challenges to this bill, too. So now is not the time to panic. In fact, if you’re an employer who doesn’t have arbitration agreements with your workers, now may even be the time to implement one, since the bills says that it will not invalidate existing written arbitration agreements that are otherwise enforceable under the FAA.

I’ve defended hundreds of cases for employers over the years in court and in arbitration. From that experience, I believe that – for most employers – the pros outweigh the cons. Since most cases end up settling and cases subject to arbitration tend to settle more cheaply, I believe arbitration agreements still make sense. Of course, every employer is different in terms of goals, risk tolerance, employee relations, and myriad other factors. So you should discuss what makes sense for your company with qualified employment counsel.