Independent Contractor vs. Employee: AB 5 Makes Dynamex California Law

On September 18, 2019, Governor Gavin Newsom signed California Assembly Bill 5 (AB 5) into law –expanding the California Supreme Court’s decision in the Dynamex Operations West, Inc. v. Superior Court (Dynamex) and codifying the “ABC test” for determining if a worker may be classified as an independent contractor, instead of an employee.

In Dynamex, the California Supreme Court revisited whether the factors from its prior decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (Borello) were the best way to determine employment for purposes of claims under the California Wage Orders. The Court concluded that Borello was not the proper test, ruling that the ABC test should be used to determine whether a worker should be classified as an employee or an independent contractor.

Under the ABC test, a worker is presumed to be an employee unless the company proves that the worker:

(A) Is free from the control and direction of the company in performing work, both practically and in the contractual agreement between the parties; and

(B) Performs work that is outside the usual course of the company’s business; and

(C) Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.

To satisfy the ABC test and legally classify a worker as an independent contractor, the employer must prove that a worker is free from the company’s control, performs work outside the company’s primary business, and is regularly engaged in the trade the worker is hired for, independent of work for the employer. All three parts of the ABC test must be satisfied before a worker can properly be considered an independent contractor.

AB 5 makes the Dynamex decision California law, and expands the ABC test to cover the California Wage Orders, the Labor Code, and the Unemployment Insurance Code.

This means that workers claiming misclassification as independent contractors should use the ABC test to make claims that they are employees and are entitled to make claims such as failure to reimburse necessary business expenses (Labor Code section 2802), failure to provide accurate and complete wage statements (Labor Code section 226), failure to pay unemployment insurance tax, and failure to provide workers compensation insurance.

Some occupations are exempt from AB 5. For these occupations, the Borello multi-factor test applies when determining whether a worker must be classified as an employee. The general exemptions to AB 5 are:

Doctors (physicians, surgeons, dentists, podiatrists, veterinarians, psychologists); Professionals (lawyers, architects, engineers); Professional services (marketing, human resources administrator, travel agents, graphic designers, grant writers, fine artist); Financial services (accountants, securities broker-dealers, investment advisors); Insurance brokers; Real estate agents; Direct sales (if compensation is based on actual sales and not wholesale purchases or referrals); Builders and contractors; Freelance writers and photographers (if they contribute no more than 35 submissions to an outlet in a year); Hair stylists and barbers (if licensed and if can set own rates and schedule); Estheticians, electrologists, and manicurists (if licensed); Tutors (that teach their own curriculum, and that are not public school tutors); Commercial fishermen; and AAA-affiliated tow truck drivers.

All other occupations are covered under AB 5, so the ABC test applies to their employment. This includes many employees who have been classified as independent contractors in the past, including rideshare, delivery service workers, and other gig economy workers; health care professionals (occupational therapists, speech therapists, optometrists, nurse practitioners, physician assistants, radiation therapists, licensed professional clinical counselors, marriage and family therapists, licensed clinical social workers, respiratory therapists, audiologists); truck drivers; and janitors and housekeepers, as well as many other types of workers.

Retroactivity

AB 5 states that “specified Labor Code provisions of the bill apply retroactively to existing claims and actions to the maximum extent permitted by law while other provisions apply to work performed on or after January 1, 2020.” The ABC test applies retroactively “with regard to wage orders of the Industrial Welfare Commission and violations of the Labor Code relating to wage orders” as do all exceptions “to the maximum extent permitted by law.”

Beginning on January 1, 2020, the ABC test will apply for purposes of the Unemployment Insurance Code and all other provisions of the Labor Code not “relating to the wage orders.” Beginning on July 1, 2020, the ABC test will apply for purposes of workers’ compensation.

If you have questions about your rights in the workplace, including whether your employment is affected by AB 5 or if you are improperly classified as an independent contractor by your employer, please feel free to contact the attorneys at Hunter Pyle Law for a free and confidential intake process.  We can be reached at inquire@hunterpylelaw or at (510) 444-4400.