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David J. Kaufmann David J. Kaufmann

The “progressive” thrust to have franchisors declared the employers of their franchisees may have reached fruition in California under a law signed by Governor Newsom on Sept. 18, 2019, commonly referred to as “AB-5” (shorthand for California Assembly Bill AB-5). (Chapter 296, California Statutes of 2019, adding §2750.3 to the California Labor Code and amending §§606.5 and 621 of the California Unemployment Insurance Code.) Importantly, other “progressive” states and the federal government may soon follow suit, including New York, where Senate Bill S6699A was introduced which, according to its sponsor, aims “to classify more workers as employees rather than independent contractors …” Senate Bill S6699A is modeled on California’s AB-5 by establishing the so-called “ABC test” (discussed in detail below) to determine if a worker or a franchisee is an employee or an independent contractor. And on the federal level, Congressional Democrats will be reintroducing the PRO Act (H.R. 2474, 116th Congress (2019-2020), Protecting the Right to Organize Act of 2019), a federal version of AB-5. With Democrats now controlling the White House and both chambers of Congress, there is a strong chance that AB-5 may become the law of the land nationwide with the enactment of the PRO Act (which is modelled in part on AB-5).

California Statute AB-5 (and State and Federal Analogues) May Deem Franchisors the Employers of their Franchisees. California’s AB-5 was the product of intense political lobbying and contributions by the Service Employees International Union (SEIU), whose goal is to eradicate the notion of independent contractors and convert them to employees ripe for unionization.

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