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Will Assembly Bill 5 – and the Answer to the Question of … What Test Applies When Classifying Independent Contractors … Make it to the Governor’s Desk this Year?

Posted in Employee Privacy Rights, Employment Contracts and Agreements, Labor Law

If you’re like me – and thousands of other attorneys, business owners, and individuals in California – you’ve probably been following the progress of Assembly Bill (“AB”) 5 and holding your breath and wondering with anticipation if Governor Newsom will sign the Bill if it makes it to his desk.  As a reminder, AB 5 is the proposed Bill to codify the decision in Dynamex v. Superior Court so that the very strict “ABC Test” would apply in order to determine the status of a worker as an employee or independent contractor for all provisions of the Labor Code and the Unemployment Insurance Code, except in certain industries and professions.

The Governor has indicated in interviews with the San Francisco Chronicle and the “All Political Podcast” that he supports ideas to expand opportunities for workers without extinguishing innovation or flexibility, but he has not really indicated one way or the other what his position is on AB 5.

Well, some new developments at the State Legislature in the last few weeks have raised the question of whether AB 5 will even make it to the Governor’s desk.   After a hearing on AB 5 was held before the Senate Appropriations Committee on August 12, 2019, the Committee referred the Bill to what is referred to as the “Suspense File.”

What Does this Mean?

Apparently at the August 12, 2019 hearing, a representative from the State Finance Department reported to the Appropriations Committee that, if passed, AB 5 would have a significant fiscal impact on the State, including costs associated with the State having to administer increased unemployment claims with the Employment Development Department, and increased wage and hour claims with the Department of Industrial Relations.

Pursuant to Joint Rule 10.5 all bills with a fiscal impact, as determined by Legislative Counsel, are referred to the Senate Appropriations Committee after they have been heard in their respective policy committees. This can include bills that appropriate money, result in substantial expenditure of state money, or result in a substantial loss of revenue to the state.

The Suspense File process has been a part of the Appropriations Committee Rules since the mid-1980s as a way to consider the fiscal impacts to the state of legislation as a whole.  The committee analysis indicates whether a bill’s fiscal impacts meet the criteria for referral to the Suspense File.  Generally, if the cost of a bill is determined to be $50,000 or more to the General Fund or $150,000 or more to a special fund, the bill meets the criteria for referral to the Suspense File. The fiscal thresholds for suspense apply to the impact on any fund in any fiscal year.  Bills that meet the Committee’s Suspense threshold will be placed on the Suspense File after testimony is taken at a regular-order hearing.

What’s Next?

The final decision regarding bills that are coming off or staying on the Suspense File are generally determined by the Chair of the Appropriations Committee, and the Senate leadership team. Usually in these situations, policy committee staff provides input, and the author of the legislation lobbies for the bill. Leadership staff and fiscal staff prepare a fiscal analysis and discuss it with the Committee Chair and other members of the leadership team and a decision is made by the Committee Chair regarding placing the bill back on the Committee floor for a vote.  According to the California Legislature’s website AB 5 apparently has been taken off the Suspense File because a Committee hearing is set for August 30, 2019.

However, time is running out.  Even if AB 5 is passed out of the Senate Appropriations Committee, it must undergo a second reading by the Senate, be further analyzed, and then assigned to yet a Third reading by the Senate before it is even voted upon by the Senate. Also, any amendments to the Bill made by the Senate must be returned to the Assembly floor and the Assembly must vote to either concur or reject the amendments.  Complicated I know … but also very time consuming!

The Legislative Session ends on September 13, 2019 which means any bills that are going to be passed and submitted to the Governor must be passed by that date.  Whether AB 5 will make it through the legislative life cycle and onto the Governor’s desk by September 13th is anyone’s guess.  However, if it does, the more uncertain question is, will the Governor sign it?  We will have to wait for the answer to that one – he’ll have until October 13, 2019 to do so.

Stay tuned.