Assembly Bill (AB) 5, authored by Assembly Member Lorena Gonzalez (D-San Diego), has been one of the most contentious measures of the 2019 legislative session. The critical issue at hand: which industries does the new “ABC Test” apply to in the wake of the 2018 California Supreme Court ruling in Dynamex Operations West, Inc. v. Superior Court?  Cue the California legislature to try and provide “clarity.” While the stated intent of the measure was to target the “gig economy,” most notably ride-share companies, it was clear that as initially introduced, AB 5 was incredibly expansive with the potential to regulate virtually every private sector employer in the state.

As with all highly contentious legislative proposals, the lobbying effort surrounding AB 5 was fierce. Organized labor pushed hard for a broad application of the proposed law, while hundreds of industry advocates pursued specific carveouts—ultimately resulting in a list of “winners and losers.” Negotiations were ongoing, with every major lobby firm in town being enlisted to expend political capital to leverage a carveout.

In years past, such negotiations would run all the way to the final evening (and early morning) of the last day of the legislative session—with members, at times, casting the final vote on concepts rather than the policy in print.  However, in 2016, California voters overwhelming approved Proposition 54, which, among other things, bans the old practice of “back of the napkin” style deals and instead requires all bills in their final form to be in print for 72 hours prior to being taken up for a final vote. As such, we have seen divisive issues such as AB 5 play out much earlier than in years past.

The Senate took up the measure and adjourned around 10:30 last night. After 11 unsuccessful attempts by Republicans to insert hostile amendments and nearly two and half hours of debate, AB 5 passed on a 29 to 11 (party line) vote—with some reluctant Democrats expressing a strong commitment to work on “clean up” legislation in January.

One of the more intriguing comments during the very spirited Senate debate was the assertion by Republican Senator Jeff Stone that the AFL-CIO has been incredibly influential in driving the politics on this bill. Rising in opposition, the Temecula senator held up a piece of paper on the floor and stated the AFL-CIO had created a standardized paper form that was then made available by the Authors office during negotiations that permitted industry lobbyists to request specialized exemptions from the bill—presumably allowing AFL-CIO the power to then review and grant selected exemptions from the bill.  The senator then attributed the form as a clear indication that AB 5 is nothing more than a labor organizing tool in the wake of the SCOTUS ruling in Janus v. AFCME.

This morning, after a debate lasting over an hour, the measure cleared its final hurdle—passing off the Assembly Concurrence File on a 56 to 15 vote. AB 5 is now heading to Governor Newsom, who published an opinion piece in the Sacramento Bee on Labor Day committing to sign the legislation.

In the end, dozens of exemptions were granted for professions ranging from cosmetologists, attorneys, doctors, dentists, architects, some classes of engineers and many more, including a narrow scope of unionized truck drivers who specifically haul materials for construction related projects. Additionally, the newspaper industry was granted a one-year delayed implementation date so that they are able to adjust their operations by 2021.

Although there is a compelling case to be made that the provisions of AB 5 do not apply to public employers—evidenced in part by recent amendments empowering local jurisdictions to bring actions against employers who allegedly misclassify workers—the measure does not provide an exemption for non-profit organizations. It is no secret that for years organized labor groups have been pushing legislative efforts to organize employees of nonprofit organizations. Local agencies’ use of non-profits, especially in the health and human services space, may be very impacted.

This conundrum is reminiscent of the recent California Consumer Privacy Act (CCPA) which was passed by the Legislature in 2018. While there were clear exemptions in that bill for state and local agencies, the vendors that contract with local agencies were not granted exemptions. This has caused confusion and compliance issues for some agencies—particularly those who administer child welfare programs, health and human services, and public safety, as these companies cannot store or share data with local agencies of Californians who opt out of data tracking. An attempt was made this year to address the concerns expressed by local government, however the legislation was parked in the Senate Judiciary committee.

One thing is for certain; there will be a series of bills introduced in January by both parties to try and grant more exemptions. Agencies should be mindful of the potential impacts and consult their legal counsel on potential applicability.

For further information, please contact:

Jon Holtzman

Dane Hutchings, Director of Government Affairs, Renne Public Policy Group