AB 5 Signed By Governor: What is the Effect on Public Agencies?

by on September 19, 2019

posted in Employment Law, Recent Court Decisions,

On September 18, 2019, Governor Newsom signed AB 5 which codifies the Independent Contractor/Employee test in the Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903.

AB 5 adds Section 2750.3 to the Labor Code which provides that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity can satisfy the ABC test.

The first prong of the test states that the worker must be free from control and direction of the hirer.  To ensure that a worker does not transform from an independent contractor into an employee, public agencies needs to make sure not to supervise, control or direct the performance of the person acting as an independent contractor.

The second prong of the test states that the worker must perform work that is outside the usual course of the hiring entity’s business.  This prong is problematic for public agencies because running the agency encompasses many aspects of  work. Independent contractor status should be determined on a case by case basis so that the type of work can be distinguished from the public agencies usual course of business.

The third prong requires that the worker must be customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.  Public agencies should make sure to include requirements in any contract for an independent contractor such as indemnification of the public agency, having insurance, and requiring the contractor to obtain a business license.  These requirements would weigh in favor of the worker being classified as an independent contractor rather than an employee.

AB 5 does make certain exceptions for specific occupations such as insurance agents/brokers, doctors/medical professionals, lawyers, architects, engineers, private investigators, accountants, security brokers/investment advisors, direct salespersons, and commercial fishermen.  The law states that these types of occupations status are to be determined by the Borello test established in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.

AB 5 also amends the definition of employee in Labor Code Section 3351 to include all elected and appointed paid public officers.  This definition of employee is effective on July 1, 2020 and these employees will be subject to Labor Code Section 2750.3, it is not retroactive.

Additionally, the bill states that employers may not reclassify an individual who was an employee on January 1, 2019, to an independent contractor due to the law’s enactment.

Public agencies should analyze all independent contractors that are doing work for the entity to ensure that they can satisfy the ABC test, or, if they are included in one of the exceptions, to ensure that they can satisfy the Borello test.  If the worker cannot satisfy the ABC test or the Borello test, they should be considered an employee and treated as such by the public entity.

tags: AB 5, ABC Test, Dynamex Case, Independent Contractors,

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