Independent Contractors in Question After California Employment Bill Passes

AB-5 Worker Status: Employees and Independent Contractors

This bill is an act to amend the Labor Code and Unemployment Insurance Code following the decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex) regarding mis-classification of workers as independent contractors. Dynamex is a nationwide courier service employing drivers to make same-day deliveries. The lawsuit was filed in 2005 with claims of unfair and unlawful business practices under the Business and Professions Code. By enacting this bill, provisions would be made to codify the decision reached in Dynamex, and clarify the application of the decision to state law, setting requirements to classify all workers as employees instead of independent contractors unless the hiring entity can prove that the person:

1. is free from the control and direction of the hiring entity in connection with the performance of the work,
2. performs work that is outside the usual course of the hiring entity’s business
3. is customarily engaged in an independently established trade, occupation or business

Occupational exceptions as decided by the court will be exempt from this bill, or the application of the 3-part test, and instead be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello). Exempt occupations include, but are not limited to, “licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.”