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Legislative Update: July 29, 2019 - Temporary Win For Employers

Ninth Circuit Decides to Depublish Vasquez Decision

The Dynamex saga is back for a sequel. In a brief yet temporary win for employers, the Ninth Circuit Court of Appeals depublished its Vasquez opinion.

Remember, in Dynamex Operations West v. Superior Court, the California Supreme Court adopted a new test, called the “ABC” test, for evaluating whether workers are properly classified as independent contractors.

As previously reported, the U.S Ninth Circuit then ruled the ABC test applied retroactively (Vazquez v. Jan-Pro Franchising Int’l). This meant federal courts should apply the test to all pending claims, regardless of when the claim originated. Even if employers legitimately relied upon and properly applied the law as it existed at the time, and the employers classified its workers as independent contractors, the federal courts could apply the new ABC test to all claims pending before them.

Depublishing means the Ninth Circuit’s Vasquez ruling is no longer binding in federal courts. Instead, the Ninth Circuit will certify a question to the California Supreme Court asking it to determine whether Dynamex should be applied retroactively.

Before California employers can breathe any sigh of relief, the California Supreme Court may still determine Dynamex applies retroactively. The California Supreme Court has already indicated how it may resolve this issue when it denied a petition for a hearing last year, asking it to state Dynamex should only apply to cases originating after the decision.

For now, we continue to wait and see how the courts will fully resolve the serious questions the California Supreme Court created with its Dynamex decision. Although employers cannot change past classification decisions, employers should tread with caution moving forward when classifying workers as independent contractors and should consult legal counsel when contemplating the use of independent contractors.

Commissioner Lara and United Nations Partner to Reduce Climate Risks

The California Department of Insurance and the United Nations Environment Program (U.N. Environment) have launched a yearlong effort to develop a Sustainable Insurance Roadmap to confront California’s climate risks. Insurance Commissioner Ricardo Lara and Butch Bacani, who leads U.N. Environment’s Principles for Sustainable Insurance (PSI)—the largest collaboration between the United Nations and the insurance industry—announced the initiative at a roundtable co-hosted with the UCLA School of Law and UC Berkeley School of Law.

This is the first time the United Nations has partnered with an American state to create a sustainable insurance strategy and action plan that would tackle the growing risks of climate change. Last year, California experienced the deadliest and most destructive wildfires in the state’s history, resulting in more than $12 billion in insured losses, making it the world’s costliest disaster.

California is the largest insurance market in the U.S., and one of the largest in the world. The California Department of Insurance was one of the first insurance regulatory and supervisory authorities in the world to sign U.N. Environment’s Principles for Sustainable Insurance and commit to tackling global sustainability challenges such as climate change, biodiversity loss, and ecosystem degradation, pollution, and social and financial exclusion.

The California Sustainable Insurance Roadmap is envisioned to pave the way for innovative risk management, insurance, and investment solutions that reduce climate risks and protect natural ecosystems. For example, new insurance products could be developed to promote cooler streets and renewable energy. In other countries, insurance solutions for coral reefs and mangroves are emerging as these natural ecosystems have been proven to significantly reduce wave energy and buffer storm surge, reducing flood risk and protecting communities. In this vein, insurance solutions for California’s protective, life-supporting natural infrastructures—such as wetlands and forests—could reduce climate and disaster risk and present new opportunities.

The latest report of the Intergovernmental Panel on Climate Change (IPCC) highlights the rapid, far-reaching and unprecedented changes needed to limit global warming to 1.5°C. It shows every extra bit of warming matters and that warming of 1.5ºC or higher increases the risk associated with long-lasting or irreversible changes, such as the loss of some ecosystems. Moreover, the latest report of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) finds around 1 million animal and plant species are now threatened with extinction, many within decades, more than ever before in human history.

The California Department of Insurance and U.N. Environment’s PSI Initiative will engage insurers and reinsurers, public policy leaders, environmental NGOs, researchers, and risk management experts on this major collaborative effort to make California’s communities and economies resilient, inclusive and sustainable.

California Moves Closer Toward Creating A Prescription Drug Single-Purchaser System

Continuing the implementation of Governor Gavin Newsom’s Executive Order issued earlier this year to take on high prescription drugs costs, the California Department of Health Care Services (DHCS) announced today it will soon begin accepting proposals to implement a significant component of the state’s prescription drug purchasing plan. Under the proposal, DHCS will be transitioning Medi-Cal pharmacy services from its contracted managed care plans to its directly negotiated fee-for-service system; purchasing on behalf of 13 million enrollees, as opposed to the current 2 million.

This week’s announcement brings the state closer to making the system a reality by creating the framework for a consolidated state negotiation and purchasing system for Medi-Cal pharmacy, and a uniform Medi-Cal pharmacy provider network and pharmacy utilization policy while allowing Medi-Cal Managed Care Plans to retain all care coordination, pharmacy adherence, and disease management responsibilities.

Earlier this year, the Governor also announced the counties of Los Angeles, Santa Clara, Alameda, and San Francisco, among the largest public purchasers of prescription drugs in California, will partner with the state to use their combined market power to take on drug companies and lower the cost of prescription drugs.

California Utilities Agree to Pay into Wildfire Fund

California’s investor-owned utilities (IOUs) last week agreed to pay $10.5 billion into the newly created Wildfire Fund. The Fund is propped up by $21 billion split equally between utility customers and shareholders, and designed as a second insurance policy for publicly traded electricity companies. This is intended to offset concerns from Wall Street about massive monetary liabilities that have threatened to upend the energy market in California.

As reported by The Sacramento Bee, “a utility or its customers are responsible for paying property damages from wildfires linked to the company’s equipment. With aging infrastructure electrifying remote areas of increasingly hot and dry terrain, the cost and risk have grown significantly in recent years. Pacific Gas & Electric filed for bankruptcy, anticipating some $30 billion in liability for fires in 2017 and 2018, earlier this year.”

Many of the wildfires have been linked to Pacific Gas & Electric Company (PG&E), resulting in their entering Chapter 11 bankruptcy proceedings. On Thursday, PG&E notified the California Public Utilities Commission of its decision to contribute to the Wildfire Fund. PG&E expects that its initial contribution to the wildfire fund would be approximately $4.8 billion, with annual contributions of $193 million. The initial contribution would be payable upon the PG&E’s emergence from Chapter 11 reorganization.

Of the initial $10.5 billion, the IOUs are responsible for $7.5 billion, meaning $2.7 billion will be split between Southern California Edison and San Diego Gas & Electric. The state will contribute $3 billion. Each IOU will also contribute $300 million in ongoing annual payments into the Wildfire Fund.

The law also requires PG&E, Edison, and SDG&E to spend a combined total of $5 billion on safety improvements over five years, while blocking the companies from seeking a return on investment that state regulators would have otherwise granted.

Rating agencies threatened to downgrade Southern California Edison and San Diego Gas & Electric if lawmakers failed to pass legislation this month to significantly reduce the industry’s risk.