California Labor Commissioner Lilia Garcia-Brower has filed the State's first enforcement action under AB 5, the controversial bill passed by the Legislature last year which dramatically restricts the treatment of workers as independent contractors in California. The target of the lawsuit is Mobile Wash, Inc., a Bellflower, CA-based business that has billed itself as the "Uber of car washing." Mobile Wash uses a mobile phone app to link home carwash customers to Mobile Wash-vetted, ostensibly-independent "detailers" (referred to as "car washers" in the lawsuit) who are dispatched and paid through the app.
AB 5 (which was codified at §2750.3 of the Labor Code) is based on the California Supreme Court's 2018 decision in Dynamex Operations West, Inc. v. Superior Court, in which the Court adopted the "ABC Test" for determining whether a worker is an employee or a bona fide independent contractor. The Court held that all workers are presumed to be employees unless the hiring entity can prove all three of the following indicia of bona fide independent contractor status:
(A) the worker 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 worker performs work that is outside the usual course of the hiring entity's business; and
(C) the worker is customarily engaged in an independently established trade occupation or business of the same nature as the work performed.
The most controversial of these three "prongs" is the "B prong" which essentially converts any company in the business of connecting providers of a particular service with customers seeking that particular service (e.g., transportation, delivery, babysitting, tutoring, caregiving, housecleaning, software programming, etc.) into the legal employer of those service providers. Prior to Dynamex, a multi-factor test, known as the "Borello factors" (from the Supreme Court's 1989 decision in S.G. Borello & Sons, Inc. v. Dept. of Industrial. Relations), which focuses primarily on the hiring entity's level of control over the work performed, was used to determine employment status. Under the "B prong" of the "ABC Test," however, a company in the business of connecting a particular type of service provider to customers may be deemed to be the service provider's employer even if the company exerts little or no control over how the work is performed.
Nevertheless, in choosing Mobile Wash for its first AB-5 lawsuit, it appears that the Labor Commissioner has not chosen to target a company that exerts little or no control over how workers perform their work. She asserts in her complaint that "Mobile Wash instructs its car washers on the techniques and methods to be used in washing cars at the customer's location [and] follows up with car washers and customers to ensure that these techniques and methods were followed" and that "even under Borello, defendants' car washers were employees of Mobile Wash, rather than independent contractors."
The lawsuit also asserts:
- that Mobile Wash is failing to comply with the special registration and bonding requirements applicable to carwash businesses (Labor Code §§2050-2065);
- that all time the car washers spend with the Mobile Wash app on their phone turned on and ready to receive work is compensable "on-call" time;
- that because they are paid a fixed amount per carwash, the car washers are piece-work employees entitled to received separate hourly pay for all "non-productive" work time, including driving to and from their homes to the customers' homes, and between customers' homes, with car-washing supplies in their cars; time spent buying supplies; and the time mandated for paid rest periods (Labor Code §226.2);
- that Mobile Wash unlawfully deducted a credit card processing fee on tips charged to credit cards (Labor Code §351); and
- that Mobile Wash unlawfully failed to provide the car washers with paid sick leave (Labor Code §247.5).
The lawsuit, filed in Los Angeles Superior Court, also names as a defendant Mobile Wash's CEO, Alfred Davtyan, as a joint employer of the car washers. It seeks to recover not less than $37 million in unpaid wages, liquidated damages and unreimbursed business expenses, plus over $7 million in penalties, attorneys' fees and interest. It further seeks an order enjoining the company from continuing to misclassify car washers and from doing business at all without complying with car wash registration and bonding requirements.
At the same time the State is pursuing this lawsuit to enforce AB 5, California is defending lawsuits challenging the law's validity, including a challenge by the trucking industry asserting that, as applied to trucking companies, AB-5's "B prong" is preempted by the Federal Aviation Administration Authorization Act (California Trucking Association v. Becerra), and an action by a journalists' association challenging a special exemption from AB 5 for freelance writers who write 35 or fewer articles for the same publication in a given year. (American Society of Journalists and Authors Inc. and the National Press Photographers Association v. Becerra.)
If you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at 818-508-3700 or visit us online at www.brgslaw.com.
Richard S. Rosenberg
Katherine A. Hren
Ballard Rosenberg Golper & Savitt, LLP