Ninth Circuit Upholds AB 5 Carveouts: What It Means for California Workers and Employers

In a landmark decision, the Ninth Circuit Court of Appeals recently upheld the carveouts to California’s AB 5, a law that has significantly impacted the classification of workers in the state. This ruling is crucial to understand for businesses, gig workers, and other professionals navigating the complexities of employment law in California. Here, we’ll break down what AB 5 entails, the significance of the carveouts, and the implications of the Ninth Circuit’s decision. If you are an employer or employee in the Bay Area with issues related to California wage and hour or antidiscrimination laws, contact lawyer Richard Koss to speak with an experienced and knowledgeable San Francisco employment law attorney.

Understanding AB 5: The Basics

Assembly Bill 5 (AB 5), enacted in 2019, aimed to reclassify many independent contractors as employees to provide them with greater labor protections, such as minimum wage, benefits, and workers’ compensation. The law essentially codified the “ABC Test” announced by the California Supreme Court in the Dynamex case for determining worker status. That test presumes that all workers are employees unless the hiring entity can prove that:

1. The worker is free from the control and direction of the hirer in connection with the performance of the work.
2. The worker performs work that is outside the usual course of the hiring entity’s business.
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Carveouts to AB 5

From the outset, AB 5 included numerous carveouts for specific professions and industries, acknowledging that a one-size-fits-all approach might not be practical. These exemptions included professions like doctors, lawyers, architects, real estate agents, and certain freelance writers and photographers. In 2020, AB 2257 further expanded these carveouts to include additional industries such as music professionals and some types of independent contractors.

The Ninth Circuit’s Ruling

Those carveouts were challenged in federal district court, which sided with the state and upheld the laws. On appeal, however, a three-judge panel of the Ninth Circuit reversed, finding no rational basis for the various carveouts. That decision was appealed to the full bench of all 11 Ninth Circuit justices. The recent decision by the full Ninth Circuit Court of Appeals has upheld these carveouts, maintaining that the exemptions provided under AB 5 and its subsequent amendment, AB 2257, are constitutional. The court’s ruling means that the existing carveouts will remain in place, allowing certain professions to continue operating under their previous classifications as independent contractors rather than employees.

Implications for Workers

For workers in the exempted professions, the Ninth Circuit’s decision provides clarity and stability. Those who prefer the flexibility and autonomy of independent contractor status can continue their work without the immediate threat of reclassification. This is particularly significant for freelancers and gig workers who rely on the ability to work with multiple clients and maintain control over their schedules.

Implications for Employers

Employers in industries with carveouts can also breathe a sigh of relief. The ruling means they can continue engaging independent contractors without facing the stringent requirements and potential liabilities associated with reclassifying these workers as employees. However, it is crucial for businesses to stay informed and ensure they are fully compliant with the specific criteria that allow for these exemptions.

The Future of AB 5 and Worker Classification

While the Ninth Circuit’s decision provides some clarity, the landscape of worker classification in California is continually evolving. Ongoing debates and potential legislative changes could further impact the way independent contractors and employees are defined. Employers and workers alike must stay vigilant and informed about current laws and potential changes.

Practical Steps for Compliance

For businesses and workers navigating AB 5 and its carveouts, here are some practical steps to ensure compliance and avoid potential legal issues:

1. Understand the Carveouts: Clearly understand which professions and industries are exempt under AB 5 and AB 2257.
2. Document Compliance: Maintain thorough documentation to demonstrate how your business or work meets the criteria for the carveouts.
3. Consult Legal Experts: Regularly consult with an employment law attorney to ensure ongoing compliance with state laws and regulations.
4. Stay Informed: Keep abreast of any changes in legislation or court rulings that may affect worker classification.

Contact Attorney Richard Koss for Help With Employment Law Issues in San Francisco

The Ninth Circuit’s decision to uphold AB 5 carveouts marks a significant moment in California employment law, providing necessary clarity for many workers and employers. However, the complexities of AB 5 and worker classification underscore the importance of staying informed and seeking expert legal guidance. More litigation on this topic is likely on the horizon as well. For those navigating these challenges in the San Francisco Bay Area, consulting with experienced employment law attorneys like Richard Koss can be invaluable in ensuring compliance and protecting your rights. Call 650-722-7046 on the San Francisco peninsula or 925-757-1700 for our East Bay office, and let us advise you and assist you competently and effectively.