By Tao Leung and Ashley King

Law360 (March 30, 2020, 3:57 PM EDT) --

Tao Leung

Ashley King

As the coronavirus pandemic spreads across the globe, companies are taking significant measures in an effort to curtail COVID-19 from spreading further — preemptively checking employees for symptoms; sending sick employees home; instituting work-from-home policies limiting business travel; requiring employees to wash their hands or wear protective masks; imposing social distancing protocols; and revising sick leave policies to be used for those diagnosed with COVID-19.

Recognizing that exposure to COVID-19 does not differentiate between employees and independent contractors, some companies have additionally rolled out certain protections and benefits to their contractors.

Many companies have agreed to provide some form of financial assistance to contractors who are sick, quarantined, and/or otherwise have reduced hours due to COVID-19. These same companies are strongly encouraging contractors, employees and vendors alike to wash their hands, practice proper respiratory etiquette, and stay home if they are feeling ill. 

But, as the COVID-19 pandemic spreads further, companies may almost certainly begin to impose even more restrictive measures with respect to their employees and contractors. While these actions are laudable and almost certainly desired by consumers, workers and the general public alike, companies will ultimately face the question of whether such measures jeopardize the contractors' classification under the so-called ABC test of California's A.B. 5.

In other words, does A.B. 5 force companies to face a Sophie's choice of instituting measures for the common good (public health) but at the same increasing the risk they have misclassified their contractors? And more importantly, has the global crisis caused by COVID-19 revealed, at a minimum, the need for a public policy or pandemic exception to, or the suspension of, the enforcement of A.B. 5?

The ABC test, as codified in A.B. 5, states that all workers are presumed to be employees unless:

(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.

The COVID-19 pandemic has now caused companies to exercise control over contractors in manners they previously would not have. One need look no further than the California Supreme Court's quintessential example of a true independent contractor, a plumber, to see the effects of how COVID-19 can alter the calculus of the ABC test during this uncertain time.[1]

Generally, a company would almost never exercise any type of control over how the plumber performs his duties.

However, now, if a company requires that plumber to wear a mask or don other protective gear while performing the plumber's services, mandates that the plumber undergo a temperature screening prior to beginning work, and requires the plumber to engage in social distancing throughout the time the plumber is working, that company is now arguably exerting control over the performance of the plumber's work. Under a strict reading of A.B. 5, these measures would arguably run afoul of the prong A of the ABC test. 

And while some companies could simply forego the use of contractors during the pandemic, not every industry is afforded the same luxury. This is especially true with respect to health care provider contractors.

Although A.B. 5 exempts certain health care professions, such as physicians, from the ABC test, A.B. 5 does not exempt many other health care professionals that have historically been classified as independent contractors. For example, A.B. 5 is silent as to professions such as nurse practitioners, physician assistants and respiratory therapists, categories of workers that are particularly important and on the front lines during this outbreak.

COVID-19, and the resulting economic slowdown it has caused, could also alter the ability of workers to meet prong C of the ABC test. Under prong C, a worker must be "customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity." Courts have interpreted this prong as requiring that a worker demonstrate not only that they can provide services to others but they, in fact, do provide such services to others in order to be classified as an independent contractor.[2] 

Moreover, courts have further interpreted prong C to mean that the workers are providing such similar services to others at the time they are providing services to the purported employer. As one case cited by the California Supreme Court in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County explained: "The present tense 'is' indicates the individual must be engaged in such independent activity at the time of rendering the service involved."[3]

And in Garcia v. Border Transportation Group LLC, the California Court of Appeal's Fourth Appellate District denied summary adjudication by the defendants on the grounds that the "[d]efendants presented no evidence in their moving papers that [the plaintiff] in fact provided services for other entities 'independently' of his relationship with [the defendants]."[4] Garcia reasoned: "Dynamex makes clear that California follows the version of part C that requires an existing, not potential, showing of independent business operation."[5]

With an increasing proliferation of shelter-in-place ordinances, COVID-19-caused shutdowns and an overall economic slowdown, many contractors will likely lose a significant portion of their normal customer base, which in turn would force them to find means of supplementing their income during this period other than their customary business.

This is particularly true given that independent contractors, even those that are properly classified as such under A.B. 5, are not eligible for benefits such as unemployment insurance, state disability insurance, paid sick leave under state or local law, or any of the benefits provided in the recently passed Families First Coronavirus Response Act.

So if that hypothetical plumber was no longer able to rely solely on plumbing-related work, that person might begin taking any type of alternative work they can just to make ends meet (i.e., start working as a delivery person, working from home as a telephone customer service representative, etc.). While this may not significantly affect the calculus under A.B. 5 if this period is short-lived, there does not appear to be an end to this state of emergency in the foreseeable future.

And should this new reality continue, it is increasingly likely a contractor that used to have an independently established trade, occupation or business, may no longer have one. So, despite providing the exact same services post-pandemic as they were prepandemic, that contractor may now be misclassified for reasons (lack of other customers) beyond either the entity's or contractor's control.

These possibilities and accompanying increased risk of misclassification will ultimately lead more companies to continue to decrease or altogether cease using independent contractors. But, in a time when countless companies are forced to lay off thousands of employees, hiring these workers as employees doesn't appear to be a feasible or practical alternative either.

A.B. 5 is already facing an onslaught of challenges in court and via legislative initiatives to amend or seek exemptions/clarifications to the legislation. In fact, California Assemblywoman Lorena Gonzalez, D-San Diego, the author of A.B. 5, acknowledged that changes to the legislation are needed. In late February, she announced that she would be proposing amendments to A.B. 5, including changes to the exemptions related to freelancer writers, photographers and editors. 

But, as the COVID-19 pandemic has revealed, changes on a much broader scale are needed. As critics of A.B. 5 have pointed out, at its core, A.B. 5 effectively removes the choice between parties to enter into an independent contractor relationship. During a time when a rising number of employees are losing their jobs and companies are not hiring, having as many options as possible for workers to continue making a living is imperative. A.B. 5, by further eliminating available avenues for work, may ultimately cause more harm than good to the very same workers A.B. 5 sought to protect. 

Society is in a critical and unprecedented period. In such times, even well-intentioned legislation, such as A.B. 5, can prove to be anachronistic. When A.B. 5 provides only theoretical benefits but inflicts real-world harm to workers, it is imperative that legislators reevaluate the impact of A.B. 5 during this crisis.

At a minimum, A.B. 5 should be amended immediately to include a public health emergency exception — namely, preventative actions taken by companies to further prevent the spread of COVID-19 should not be taken into account when determining whether a contractor is properly classified. Unfortunately, it is unlikely any type of amendment is forthcoming in the near future. Until then, it appears that A.B. 5 will continue to burden both companies and workers alike.

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Tao Y. Leung is counsel and head of the California labor and employment practice at Hogan Lovells.

Ashley King is an associate at the firm.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Dynamex Operations W. v. Superior Court , (2018) 4 Cal. 5th 903, 959.

[2] Id. at 962, fn 30.

[3] In re Bargain Busters, Inc. (1972) 287 A.2d 554, 559 [cited by Dynamex, at p. 962, fn. 30].

[4] Garcia v. Border Transportation Grp., LLC , (2018) 28 Cal. App. 5th 558, 575.

[5] Id. at 575.

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