On March 26, 2019, proposed Assembly Bill 5, which would codify the California Supreme Court’s controversial Dynamex decision, was amended to exempt certain types of licensed workers. Just as noteworthy as the types of workers identified as exempt from the standard are the types of employees who were not identified. For example, the exemption does not appear to cover trucking companies and gig economy transportation companies. If there are specific statutory exclusions, it will be difficult for courts to find exclusions in the common law.
By way of background, on April 30, 2018, the California Supreme Court issued the Dynamex decision, an alarming decision for California employers utilizing independent contractors. In the opinion, the Court applied the “ABC Test” in determining whether an individual is an employee or independent contractor under the Wage Orders. Instead of the longstanding multi-factor Borello test, the Court found that the hiring entity has the burden to establish all of the following elements:
(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; and
(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.
Part B of the test is particularly problematic for a number of industries, especially those with established business models reliant upon the use of contractors.
After the decision, courts grappled with how to apply the decision and the State Capitol was bombarded with lobbyists. Three relevant bills have been proposed. AB 71 seeks to codify the longstanding Borello standard, AB 233 seeks to exempt insurance salespeople and AB 5 seeks to codify Dynamex.
On March 26th, AB 5 was amended to provide that the Borello factor test (and not the ABC Test) would apply to:
- Persons or organizations licensed by the Department of Insurance;
- licensed physicians or surgeons;
- securities broker-dealers or investment advisers or their agents and representatives that are registered with the SEC or FINRA or licensed by the State; and
- direct salespeople under Unemployment Insurance Code § 650 (licensed salespeople whose compensation is directly tied to the sale, such as real estate salespeople).
On Wednesday, April 3, AB 5 will be before the Assembly Labor and Employment Committee and AB 233 will be before the Assembly Insurance Committee.
The Dynamex decision has sent shockwaves through business community in California; and the legislature appears to be attempting to provide some clarity. Regardless of the outcome, the resulting legislation will have a significant impact on how companies do business in California. In the meantime, tracking the progress of the legislation may help companies prepare accordingly.