EDD violates AB5 by contracting with Deloitte

It was recently reported that California’s Employment Development Department (EDD) gave an $11 million dollar contract to Deloitte for assistance in processing California’s massive wave of unemployment claims. Interestingly, the EDD is the state agency that is charged with both processing unemployment claims and enforcing AB5, which went into effect January 1, 2020.

In recent months, the EDD has been sending notices to private businesses across the state advising of the new rule and indirectly threatening enforcement actions.

For those who are unaware, AB5 is the California assembly bill which codified the ABC test from the Dynamex decision issued by the California Supreme Court in April of 2018. The decision changed how employers determine whether a person must be an employee or is allowed to be an independent contractor. Essentially, every person engaged by an employer must be an employee, unless they meet and three-part test, hence ABC.

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 biggest sticking point for most businesses is prong B. Defining exactly what is “outside the usual course of the hiring entity’s business” is murky at best. This is particularly true because many, if not most, businesses are not vertically integrated. That is to say, that most businesses combine a multitude of services and products to meet their customers needs and readily defy general classifications. The point being, prong B is so murky even the EDD can’t get it right.