Calif. AB 5 Unfairly Forces Worker Loyalty To Employers

Law360 (October 13, 2020, 3:27 PM EDT) --
Michael Nader
Michael Nader
California's Proposition 22 is on the ballot as an initiated state statute that, if approved by voters, would define app-based transportation and delivery drivers as independent contractors, and provide labor and wage policies specific to those workers. The proposed new law would override A.B. 5, which established the so-called ABC test for classifying workers as independent contractors or employees.

The opponents of Proposition 22 primarily argue that A.B. 5 provides "rights and protections" to workers as employees in the form of meal and rest breaks, minimum wages, overtime premium rates, workers' compensation coverage, and other benefits of the California Labor Code. But that is not the only impact of classifying a worker as an employee. Employment status is not a one-way street, in the sense that classifying a worker as an employee does not solely grant new rights and benefits to the worker. 

Fundamental to the nature of civil and human rights is that every right triggers a corresponding duty; rights and duties are inseparable. The same principle applies in employment law.

While workers gain certain rights when they are classified as employees, the California Labor Code also imposes significant legal duties on employees based on that status, which are both positive and negative. The Labor Code imposes positive duties on employees to perform certain acts at certain times, and negative duties that oblige employees to refrain from certain acts at all times, even outside of working hours and for a period after their employment concludes.

These legal duties are numerous, including the following 10 that employees owe to their employers under California law:

  • Courts have long recognized that an employee has a legal duty of providing their undivided loyalty to the employer, such that the employee must faithfully serve one's employer during their working hours, and are not to engage in a competing business outside of those hours. As such, an employee must refrain from taking any actions that are inimical to the best interests of the employer.

  • Except for the employee's compensation, everything that the employee acquires by virtue of one's employment, both during and after the expiration of the term of employment, belongs to the employer.[1]

  • An employee has a legal duty to promptly notify the employer of everything that the employee receives for the account of the employer.[2]

  • An employee has a legal duty to use ordinary care and diligence in performing their work for the employer.[3]

  • An employee has a legal duty to exercise a reasonable degree of skill in the performance of their work for the employer.[4]

  • An employee has a legal duty to use the skills they possess that are required for their work.[5]

  • An employee has a legal duty to substantially comply with all of the directions of their employer concerning the services provided.[6]

  • An employee has a legal duty to perform their services in conformity to the usage of the place of performance.[7]

  • An employee who has any business to transact on one's own account, similar to that entrusted to the employee by their employer, has a legal duty to always give the preference to the business of the employer.[8]

  • Employers can require employees to assign to their employer their rights to an invention that the employee developed while working for the employer, and while using the employer's equipment, supplies, facilities or trade secret information.[9]

Accordingly, employees failing to perform any of these positive duties (e.g., exercising the required degree of care and skill) or failing to refrain from these negative duties (e.g., taking actions inimical to the employer's interests), could be sued by their employers. For example, an employee who is guilty of a culpable degree of negligence is liable to one's employer for the damage sustained by the employer as a result of that negligence.[10]

By mandating that more workers be classified as employees, A.B. 5 forces workers to assume these legal duties to their employers provided by the Labor Code. Employers, in turn, gain the right to control the worker by setting their work schedules, designating their assignments, closely supervising their work, and prohibiting employees from working for competitors.

As such, A.B. 5 is not just about providing more protections to workers, it shoehorns many workers into an employment status that mandates undivided loyalty to their employer, and deprives them of the flexibility and discretion that they enjoyed as contractors controlling the means and manner of their own work. When it comes to being classified as an employee, the worker is in for a penny, in for a pound. They shoulder a range of legal duties to their employers that extend during regular work hours and afterward.

The Department of Industrial Relations' Division of Labor Standards Enforcement has argued that the Borello test has provided a satisfactory basis for analyzing disputes concerning a worker's independent contractor status. The Borello test primarily considers the level of control that the employer exercises over the worker, along with other factors.

Considering the scope of employee duties mandated by the Labor Code, the level of control should be the primary factor in the classification analysis.

Only an employer who exercises significant control over a worker and the means and manner of their work should be able to demand an employee's undivided loyalty and agreement to refrain from working for a competitor; full disclosure of all transactions; a standard of care, diligence and skill in the employee's performance of work; the employee's compliance with all employer directions; and the employer's ownership of the employee's inventions. The ABC test doesn't require the same level of control, and yet yokes workers to all of the same employee duties. 

Many contractors recognize that being classified as an employee is not in their best interests, and have clamored for exemptions. To date, the Legislature has granted over 50 exemptions from A.B. 5, from amateur umpires to manicurists to song writers. These individuals recognize that employment status is not just about additional rights to benefits, but also involves significant new duties to employers that they would prefer not to assume.

Also fundamental to human rights law is the right for individuals to exercise their personal economic initiative to earn a livelihood, or to earn supplemental income to improve one's material conditions. An economy is more just when the state provides individuals with a broader range of legal avenues to work. But instead of expanding such legal opportunities for Californians to earn a living, A.B. 5 contracts them.  

Michael J. Nader is a shareholder at Ogletree Deakins Nash Smoak & Stewart PC.

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] Labor Code § 2860.

[2] Labor Code § 2861.

[3] Labor Code § 2854. 

[4] Labor Code § 2858. 

[5] Labor Code § 2859. 

[6] Labor Code § 2856.

[7] Labor Code § 2857. 

[8] Labor Code § 2863.

[9] Labor Code § 2870.

[10] Labor Code § 2865. 

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