27 California Buildings News • Q1 2020
New Labor and Employment Laws Affecting California Builders By Dwayne P. McKenzie and Cathy T. Moses In 2019, the California Legislature passed several new employment laws that we anticipate will affect many builders in the State. Below is a summaDwayne P. McKenzie ry of some of the most noteworthy new laws. AB 5 Redefines the Rules for Classifying Workers as Employees or Independent Contractors. AB 5 codified a new standard for employers to use in determining whether a worker is an independent contractor or employee. The law extends the holding issued by the California Supreme Court in Dynamex Cathy T. Moses Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018). In Dynamex, the Court established a three-factor “ABC test,” which presumes that a worker is an employee unless an employer can establish that all of the following ABC factors are satisfied: (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The Supreme Court’s decision in Dynamex applied narrowly, in that it applied only to issues under California’s Industrial Welfare Commission (IWC) Wage Orders. With AB 5, however, the Legislature expanded the reach of Dynamex, so that the test now applies to a broader array of circumstances, including qualifying for unemployment insurance coverage, workers’ compensation benefits and employee rights under the California Labor Code. Since independent contractor relationships exist in every industry, the impact of AB 5 is substantial. Because of
this, many industries lobbied for and obtained exemptions that were included in the bill. For example, AB 5 includes a long list of exempt professions that are not subject to the ABC test, including licensed professions such as lawyers, architects, engineers, private investigators, and accountants; physicians; direct sales salespersons; and real estate licensees. A broad exemption also exists for business-to-business contracting relationships. Importantly, for developers and builders, treatment of owner-operators of trucks and other equipment is a significant issue under AB 5, since they do not fit within the exemptions. Although an exemption exists for “construction trucking services,” it essentially prevents the use of brokers. That could create issues for contractors who often use owner-operators. Also, the construction trucking services exemption is set to expire in two years, creating uncertainty over the longer term as to the costs of AB 5 on construction. The Legislature Seeks to Prohibit Mandatory Arbitration Agreements. AB 51 bars employers from requiring as a condition of employment or continued employment that an employee waive a right, forum, or procedure relating to a violation of the California Fair Employment and Housing Act (FEHA) or the Labor Code. Thus, the law appears to prohibit mandatory arbitration agreements. It also prohibits employers from threatening, retaliating against, or terminating any employee or job applicant based on a refusal to consent to such a waiver. However, the California Chamber of Commerce and other trade associations have challenged AB 51 in federal court on the grounds that it conflicts with the Federal Arbitration Act (FAA), which broadly favors the use of arbitration as a means of dispute resolution. If successful, the challenge could result in AB 51 becoming unenforceable. Employers need to continue to monitor the status of AB 51 as the challenges work their way through the courts. Limits on No-hire Agreements “No-hire” provisions are often included in settlement, separation and similar types of agreements and are designed to limit an employee’s ability to be reemployed by the employer in the future. In AB 749, the Legislature limited the use of no-hire provisions, stating that an agreement to settle an employment dispute must not contain a pro(Continued on page 29)
