On Jan. 12, 2022, the U.S. District Court for the Southern District of California dismissed, without prejudice, the International Franchise Association's (IFA) lawsuit against the state of California which contended that California Labor Code §2775(b)(1)—which codifies the "ABC Test" to determine whether a worker should be classified as an employee or an independent contractor—violates the Commerce Clause and is preempted by federal law when applied to franchising. See International Franchise Association et al. v. State of California et al. (IFA v. California), 2022 WL 118415 (S.D. Cal. 2022).

The above-cited section of the California Labor Code has for years been shorthanded as "AB-5," short for Assembly Bill 5, which ultimately was enacted by the California Legislature. Section 2775(b)(1) of the California Labor Code statutorily codifies the Supreme Court of California's decision in Dynamex Operations W. v. Superior Ct., 4 Cal. 5th 903, 416, P.3d 1 (2018), which held that the three factor "ABC Test" should be applied to determine whether a worker is an employee or an independent contractor. As noted in previous columns, that ABC Test requires that workers be classified as employees unless they can demonstrate: (A) that the worker is free from the control and direction of the hiring party in connection with the performance of the work, both under the contract for the work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity's business; and (C) that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.