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In an unsurprising and expected move, on Thursday, May 6th the Biden Administration’s Department of Labor (“DOL”) published its
Final Rule withdrawing the Trump Administration’s January 7, 2021 “Independent Contractor Status under the Fair Labor Standards Act”
rule. Practically, the Biden Administration’s Final Rule keeps in place the “totality of the circumstances” economic realities test the DOL has traditionally used in determining independent contractor status under the Fair Labor Standards Act (“FLSA”) and withdraws the “focused economic-reality” test the Trump Administration sought to impose, but which the DOL never implemented. The Biden Administration cited three independent reasons for the decision to withdraw the January 7th rule:
On 30 April 2018, the California Supreme Court issued the seminal decision in
Dynamex Operations West, Inc. v. Superior Court, adopting the “A-B-C Test” for determining independent contractor status in the state. The A-B-C Test, which superseded the prior, less stringent common law
Borello test,
1 was later codified by the state legislature in California Assembly Bill 5 (AB-5). Under AB-5, a worker is presumed to be an employee and not an independent contractor unless the entity can establish the following three elements:
(A) The person 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 person performs work that is outside the usual course of the hiring entity’s business; (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Shawn Yadon, CEO of the California Trucking Association (CTA), issued the following statement in response to the decision by The U.S. Ninth Circuit Court of Appeals panel to reverse the preliminary injunction granted in January 2020 from the U.S. District Court. That preliminary injunction had blocked the State of California from enforcing Assembly Bill 5 (AB 5) upon motor carriers and independent owner-operators conducting business in the state. The new test was set forth in the Dynamex Operations West, Inc. v. Superior Court (Dynamex) ruling, which was subsequently codified by the California Legislature in the form of AB 5 in 2020:
“We continue to stand by our initial claim that the implementation of AB 5’s classification test is preempted by federal law and is clearly detrimental to the long-standing and historical place California’s 70,000 owner-operators have had in the transportation industry.
A small San Francisco circus tried to do right by its workers. Now it may be going out of business
Ironically, if Circus Bella had just waited to reclassify its workers, it might not be in this mess.
Lily Janiak April 26, 2021Updated: April 26, 2021, 7:02 pm
Circus Bella Executive Director Abigail Munn does plank exercises at her home in San Francisco. Munn says her 13-year-old circus company is on the verge of going out of business because of a combination of threats: the pandemic, AB5 and high workers’ comp payments that because of bureaucratic rules can’t be reduced, even though the company isn’t performing. Photo: Marlena Sloss, Special to The Chronicle
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Employers grappling with independent-contractor classification had a busy 2020 and should expect a flurry of additional activity this year. Few areas in employment law are changing as rapidly. Last year, many concerned about the future of contractor-classification laws paid careful attention to California and AB 5, which went into effect on Jan. 1, 2020, and codified the California Supreme Court’s landmark decision in Dynamex Operations West Inc. v. Superior Court of Los Angeles.
In a recent article for Law360, McDermott partners Ellen Bronchetti and Ron Holland consider the impacts of the California law on the gig economy, employer classification tests and organized labor in the United States.