California Poised to Reclassify "Potentially Several Million" Independent Contractors

Author: Michael Cardman, XpertHR Legal Editor

September 11, 2019

California is on the verge of further limiting the use of independent contractors.

Last year, the California Supreme Court issued its Dynamex ruling, establishing an employee-friendly "ABC test" under which a worker will be considered an employee under California's wage orders unless the hiring entity can show that the worker:

1. Is free from control and direction of the work, both under the contract and in fact;
2. Performs work that is outside the usual course of its business; and
3. Is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

California's legislature is expected to pass a bill, AB 5, which would codify the Dynamex ruling as part of the state code. It also would extend its application beyond the wage orders to include state labor and unemployment insurance laws.

The bill's authors said their intent is to restore worker protections - including a minimum wage, workers' compensation, unemployment insurance, paid sick leave and paid family leave - to "potentially several million workers who have been denied these basic workplace rights."

The state Senate passed AB 5 on September 10. Now, it goes back to the Assembly, which has until September 13 to pass the Senate's version of the bill. If the Assembly passes the bill as expected, it would go to the desk of Gov. Gavin Newsom, who would have until October 13 to sign it into law. Newsom wrote an op-ed supporting the bill.

If enacted, AB 5 would go into effect January 1, 2020.

Several types of workers would be exempt from the ABC test, including:

• Certain professionals, including physicians, surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, private investigators and accountants;
• Certain service providers such as marketing contractors, HR administrators, travel agents, graphic designers, grant writers, fine artists, still photographers, photojournalists and freelance writers; and
• Certain construction industry contractors.

These workers would not automatically be considered independent contractors, however. Rather, they would be classified under the more employer-friendly test that the California Supreme Court had set forth in its 1989 S.G. Borello & Sons ruling, which weighs several different factors - such as the worker's opportunity for profit or loss, whether the worker was paid by the hour or by the job and the length of time for which the services were to be performed - on a case-by-case basis.