From Littler Mendelson P.C., Patrick Stokes, Jim Paretti, Michael Lotito and Bruce Sarchet discuss the apparent interpretation of California’s AB5 and whether it applies to joint employment situations (for example, a franchisor/franchisee relationship) if the worker is an employee of the franchisee. Patrick Jim and Michael write:
Several developments during the past three weeks appear to clarify that AB 5 is not intended to replace, alter, or change existing law regarding joint-employer status and is directed at the narrower misclassification question. These developments do not mean, however, that the issue is settled, and litigation on this point will likely follow. But these new developments are instructive in determining the legislators’ intent to limit AB 5’s reach.
Legislators amended the bill twice during the last two weeks before the legislative session closed on September 13, 2019. These belated amendments suggest AB 5 is limited to situations where the workers at issue are classified as independent contractors.
On August 30, 2019, an amendment to the bill added the phrase “rather than an independent contractor” to key provisions of the bill. For example, the critical first sentence of proposed Labor Code section 2750.3 was amended to read:
For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied1
On September 6, 2019, the final amendment to the bill added the declaration:
… the intent of the Legislature in enacting this act to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers’ compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave. …2
These amendments reflect that legislators apparently intended the bill to focus on a narrow issue: the alleged misclassification of workers as independent contractors. Parenthetically, this accords with the policy concerns about misclassification that have animated the AB 5 debate: namely, that when workers are misclassified as “contractors,” they lack certain basic workplace protections. If, however, there is no alleged misclassification (that is, the workers are properly classified as the employees of one company), they are already receiving the “basic rights and protections” of that status, AB 5’s purpose is served, and the law should not extend to determining whether they are employees of an unrelated company.
Assemblymember Gonzalez’s Letter
This interpretation was further borne out in legislative history provided to the Assembly after passage of the bill. On September 13, 2019, Assemblymember Lorena Gonzalez, chief sponsor of AB 5, published a letter to the California Assembly’s daily journal.3
The letter contains the following statement regarding misclassification versus joint-employer status:
AB 5 is not intended to replace, alter, or change joint employer liability between two businesses. AB 5 is focused upon the determination whether an individual is an employee or an independent contractor.4
While welcome, this clarification would have been more helpful had the express language been incorporated into the bill itself.
Governor Newsom’s Signing Statement
Upon signing the bill, Governor Newsom issued a written statement. The statement described the bill as “landmark legislation” that will “help reduce worker misclassification – workers being wrongly classified as ‘independent contractors,’ rather than employees.” This language suggests Governor Newsom also views the bill as focused on alleged misclassification, rather than joint-employer status.