It’s Time to Review AB 5 If Policymakers Really Want to Restart California’s Economy

“Bring Back Borello!” will never work as a rallying cry, but it might be a timely agenda item for California legislators to seriously consider when the coronavirus coast is clear for them to return to Sacramento.

In the meantime, the April 30 second anniversary of the state Supreme Court’s Dynamex decision and the Assembly Bill 5 it subsequently unleashed should be reviewed with all due dispatch if policymakers are sincerely committed to restarting the state’s economy.

As with anything, a few bad actors can ruin it for everyone. If I run a business and can classify all my employees as independent contractors, even though I treat them like employees by directing their work, I can save a bundle on state and federal taxes and on things like unemployment insurance and workers’ compensation premiums. The independent contractor is responsible for all that.

For nearly 30 years, California used the Borello test, named after the S.G. Borello & Sons, Inc. v. Department of Industrial Relations court case, for classifying employees and independent contractors — and it worked well. “Prior to Dynamex,” wrote Timothy T. Kim, a labor and employment attorney, “many cases (including the court’s own recent decisions) referred to the multi-factor Borello test as the traditional ‘common law’ classification analysis.”

So, what happened?

In the Dynamex Operations West, Inc. v. Superior Court of Los Angeles case, the state Supreme Court, noting the rise of independent contractors and the amount of people who work from home, decided not just to rule on a traditional employee-or-independent-contractor matter but also to create a new test out of whole cloth that would replace Borello.

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AB 5 Is Riddled With Exceptions

Gone was Borello’s multi-factor test and in its place rose the new ABC test, wonderfully simple in its clarity, wonderfully inapplicable to modern economic life. In short, going forward from the court’s April 30, 2018, decision, independent contractors had to be truly independent in two main ways: they had to perform work at their own direction, not an employer’s, and the work had to be “outside the usual course of business” of the hiring entity.

The California Legislature could have overruled the court’s decision and changed the standard but, in the name of protecting what it saw as the workers’ rights elements of the ruling, decided instead to confect one of the great, bubbling public policy goulashes in the nation. The result was called AB 5.

You can be forgiven for thinking that physicians working in a hospital would be employees of that hospital, people providing health care working for an entity that provides health care, nice nestling that. No sir, no ma’am. Physicians love their independence and were allowed by AB 5 to keep their independent contractor status. So, too, were fishermen working for fishing companies.

In fact, AB 5 is riddled with exceptions to the spirit of Dynamex for those who knew the number of knocks on the door it would take and the right password to give to be let back into their previous work life. About 50 occupations, from landscapers, to yoga instructors, to even midwives, remain forcibly detained in AB 5’s cell.

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This Entire Issue Is Not Just About Uber, Lyft and DoorDash Drivers

Assemblywoman Lorena Gonzalez, author of AB 5, announced on April 17 that she will spring musicians, composers, and songwriters, among others, when the Legislature returns. No such good news for those who play for symphonies or theme park bands. AB 5’s shackles are still around your ankles.

So, you see, this entire issue is not just about Uber, Lyft and Doordash drivers. It affects everyone who loves the independence of being their own boss, setting their own rates on the value of their work, and working when they want, and for whom they want. The gig economy is here to stay, and the coronavirus crisis has exponentially increased its importance.

“The bill would exempt specified occupations from the application of Dynamex, and would instead provide that these occupations are governed by Borello,” so leads off the Legislative Counsel’s Digest in the actual bill, now law, itself.

So, Borello’s superior usefulness hasn’t left completely. Right now, a great collective handwringing is going on about how to restart the state’s economy. Exempting all business-to-business relationships from the Dynamex decision would be one of the best initial starts. And for those cases in need of determining an employee from an independent contractor — Bring Back Borello!

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About the Author 

John Kabateck is state director for the National Federation of Independent Business, John.Kabateck@nfib.org. He wrote this commentary for CalMatters, a public interest journalism venture committed to explaining how California’s Capitol works and why it matters.