Expanding Reach of California Labor Law Could Disrupt Gig Economy

SAN FRANCISCO (CN) – The Ninth Circuit this week expanded the reach of a game-changing state labor standard that could disrupt the gig economy in California, but obstacles remain for workers fighting to enforce the law in court.

“A lot of these gig economy companies have sidestepped getting to the merits of these claims by using arbitration clauses,” said Shannon Liss-Riordan, a veteran labor rights lawyer who gained a major victory in the Ninth Circuit this week.

Liss-Riordan, who has represented workers in class actions against companies like Lyft and Uber, hailed the Ninth Circuit’s ruling in Vazquez v. Jan-Pro Financing on Thursday as a landmark victory for California labor rights.

(AP Photo/Eric Risberg, File)

The court ruled that janitors working for a franchise-structured cleaning firm could not be classified as independent contractors and denied benefits, including minimum wage and overtime.

Liss-Riordan, who litigated the case for 11 years, said the ruling is significant for two reasons. First, it held the state’s stricter labor standard applies to companies with a three-tiered franchise structure. Second, it found the simpler “ABC test” for determining employment status applies retroactively.

To deem workers as contractors under the test established by the California Supreme Court in Dynamex v. Superior Court last year, a company must show it doesn’t directly control the worker, that the work falls outside its usual course of business, and that the worker is “customarily engaged in an independently established trade.”

The Ninth Circuit opinion this week confirming that the test applies to work done prior to the April 2018 Dynamex decision makes the standard stronger and more expansive, said Stanford law professor William Gould IV.

“It will give considerably more bite to Dynamex,” Gould said.

Gould said he believes the ruling will also hasten calls by industry lobbyists to update state labor laws and create new exemptions for gig-economy workers.

“There’s tremendous pressure to either reverse Dynamex legislatively or carve out exceptions,” Gould said.

In April, the California Chamber of Commerce sent a letter offering to support state Assemblywoman Lorena Gonzalez’s CA-AB5, a bill that seeks to codify the Dynamex standard in the state’s labor code, as long as certain workers are exempted from the law.

Gonzalez, a San Diego Democrat, told Politico last month that her bill “would absolutely” not exempt all the jobs recommended by the chamber, adding that she viewed the letter more as a negotiating tool.

California Chamber of Commerce spokeswoman Denise Davis did not return an email seeking comment Friday.

Liss-Riordan argued it would be unfortunate if the state Legislature took away the stronger labor protections established by the California Supreme Court last year to appease gig-economy giants like Uber and Lyft.

“These companies are all profiting massively by being able to avoid all their responsibilities as an employer,” Liss-Riordan said. “I don’t see why we need to rewrite laws to let them profit even more.”

Uber and Lyft did not immediately return emails seeking comment Friday, but both companies have argued in the past that their drivers like being classified as independent contractors because they enjoy the flexibility of working whenever they want and working for different companies at the same time.

It’s been more than a year since the California Supreme Court issued its decision in Dynamex, but the state Department of Labor has yet to crack down on gig-economy companies that classify workers as contractors.

On Friday, the state Department of Labor released a letter stating that it would enforce the Dynamex standard, but only against companies that meet the state Industrial Welfare Commission’s definition of employer. The commission defines an employer as one that exercises control over wages, hours or working conditions, or engages or creates a common-law employment relationship.

The only thing that seems clear about the state’s approach to enforcing the labor law is that it remains open to a murky legal interpretation.

Gould noted that former California Gov. Jerry Brown never adopted or took a position on the Dynamex standard, probably because of “political pressure” on him to override or change it. And since Gov. Gavin Newsom took office in January, he has not yet articulated his position on the issue.

Meanwhile, the Ninth Circuit’s latest ruling will continue to have ramifications in the courts.

Last month, a federal judge in Washington state denied Amazon’s motion to compel arbitration in a class action brought by delivery drivers, including some from California, claiming they were misclassified as contractors. The Ninth Circuit is also reviewing a case involving a Grubhub delivery driver who claims the company improperly labeled him a contractor and denied him employment benefits. The retroactive Dynamex standard could be applied in both cases.

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