How to Operate in California with Independent Contractors After AB5 Bill Is Signed Into Law


From JDSupra, Richard Reibstein provides an excellent summary of Assembly Bill 5, the bill that incorporates the ABC test into law. Richard writes:

The latest version of Assembly Bill 5, which codifies the California Supreme Court’s Dynamex decision that was issued in April 2018, is about to become law.  Dynamex created a so-called ABC test requiring companies to satisfy each of three strict requirements to establish independent contractor status, dramatically changing decades of settled law in California.  Prior to Dynamex, IC status was determined in that state by application of a multi-part test that the California Supreme Court had issued three decades earlier in the Borello case, which weighed and balanced a number of factors.  Essentially, Dynamex instantly turned tens of thousands of businesses in scores of industries that were operated for years in compliance with settled law into companies that, overnight, might be operating in violation of the law.

Prior to this legislative initiative, all industries were covered by the Dynamex decision for so-called “wage order” claims.  However, Dynamex did not cover “non-wage order” claims, such as causes of action for overtime and reimbursement of expenses, as we noted in a blog post reporting on a case that delineated which types of claims were covered and which were not by the Dynamex.  AB5 began as a legislative effort to codify Dynamex for both wage order and non-wage order claims (as well as claims under the unemployment and disability benefits laws in California).  But it ended up becoming a lobbying exercise whereby over 50 of industries and types of businesses have been exempted from the ABC test in Dynamex ABC and, for those companies fortunate enough to have been carved out of the harsh ABC test, statutorily re-establishing the multi-factor test in Borello for wage and non-wage claims.

Those carved out of AB5 are the following:

  • selected professionals (physicians and surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, and accountants)
  • broker dealers, investment advisers, direct salespersons, private investigators, and commercial fishermen
  • selected professional service providers that meet all of six specific requirements in the following occupations: marketing contractors, human resources administrators, travel agents, graphic designers, grant writers, fine artists, enrolled tax agents, payment processing agents, still photographers, photojournalists, freelance writers, publication editors, and newspaper cartoonists
  • licensed real estate salespersons, repossession agents, estheticians, electrologists, manicurists, barbers, and cosmetologists
  • business-to-business contractors that meet all of 12 specific requirements
  • selected construction subcontractors and motor club service providers
  • referral agencies connecting clients with service providers that meet all of 10 specific requirements in the following industries: graphic design, photography, tutoring, event planning, minor home repair, moving, home cleaning, errands, furniture assembly, animal services, dog walking, dog grooming, web design, picture hanging, pool cleaning, and yard cleanup

Some of the exemptions do not, however, cover all businesses in a particular industry, especially where the carve-outs include a number of specific requirements, all of which must be met.

Many industries were not granted exemptions even though they are similar to the types of industries that AB5 specifically carved out from having to meet the strict ABC test.  And certain types of gig economy businesses, such as ride-sharing technology companies, were likewise omitted from any relief from Dynamex and are now covered by the ABC test for both wage and non-wage claims.

Read the full story at How to Operate in California with Independent Contractors After AB5 Bill Is Signed Into Law | Locke Lord LLP – JDSupra

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