California: IMPORTANT Changes for Independent Contractors

AB 5 codifies the already existing Dyanamex “ABC test” for independent contractors. A significant difference between now and next year is that there will be exceptions for certain jobs and relationships that do not currently exist. Those exceptions will revert back to the Borello multi-factor test for determining independent contractor status. Another key difference from Dynamex is that AB 5 will apply for purposes of the Labor Code, Wage Orders, and Unemployment Insurance Code. Starting July 1, 2020, it will apply for purposes of workers’ compensation issues.

Exceptions will exist for licensed insurance agents; physicians, dentists, podiatrists, psychologists, veterinarians; lawyers, architects, engineers, private investigators, accountants; securities brokers and investment advisors; direct sales salespersons; commercial fisherman; newspaper delivery (one-year exemption); “professional services,” such as marketing, human resources, travel agents, graphic design, grant writers, fine artists, enrolled agents, payment processing agents, photographers, freelance writers, provided they meet specified criteria; licensed estheticians, electrologists, barbers, cosmetologists and manicurists, provided they meet specified criteria; real estate agents; repossessors; general contractors and subcontractors in construction; subcontractors providing construction trucking services, provided they meet specified criteria; motor club and third party motor club services provider relationship; referral agency and service provider relationship.

There is also an exception for business-to-business relationships if the service provider is free from direction and control, provides services directly to the business rather than to customers of the business, has a contract in writing, has a business license or business tax registration where required, has a separate business location, is customarily engaged in an independent business, actually contracts with other businesses, advertises and holds itself out to public, provides its own tools, vehicles and equipment, can negotiate its own rates, can set its own hours and location of work, and is not performing work for which a Contractors State Licensing Board license is required.

Although this bill changes the independent contractor landscape in California, employers can likely expect changes to the exemption list as time goes on. Also, employers should not forget to also analyze independent contractors under all other applicable tests (e.g., DOL, IRS, etc.).

Action Items