Last year, in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), the California Supreme Court adopted the “ABC test” to determine whether a worker was an employee or independent contractor. Under the ABC test, a person hired to provide labor or services shall be considered an employee unless the hiring entity demonstrates that all of the following conditions are satisfied:
- The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact, AND
- The person performs work that is outside the usual course of the hiring entity’s business, AND
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The decision considerably expanded the traditional test, and made it much easier for a worker to claim employment-related protections.
Following the Dynamex ruling, the California Assembly introduced AB 5, which aims to codify the rule in Dynamex. As it stands now, AB 5 has passed the Assembly and will likely pass the Senate this month.
The bill adds Section 2750.3 to the Labor Code, which begins by making the ABC test the default standard. The interesting part of the bill, however, lies in the exemptions to this test. When applicable, these exemptions would still allow a worker to prove employment under the old rules, but exempt workers could not take advantage of the very easy ABC test.
Subdivision (b), for example, exempts most licensed professions, e.g. doctors, dentists, lawyers, accountants, insurance brokers, etc. Not too surprising.
Subdivision (c) exempts contracts for “professional services” if they meet certain conditions. As defined, the term “professional services” includes marketing, human resources administration, travel agent services, graphic design, grant writing, “fine artists,” enrolled agents licensed by the IRS, freelance writers and photographers, and licensed cosmetologists.
It is no surprise that freelance writers and photographers would be exempted from the Dynamex test. It will be interesting to see how the term “fine artist” is applied If this becomes law. Do bands or DJs performing at clubs qualify as “fine artists?” What about magicians or exotic dancers? What exactly is “fine art?”
Another carve out comes in Subdivision (e) which exempts workers in “a bona fide business-to-business contracting relationship, as defined below, under the following conditions:”
On its face, this exemption seems directed at business consultants. However, the language is broad enough to exempt a wide range of workers. Strangely, even though it applies to “sole proprietorships,” the exemption “does not apply to an individual worker, as opposed to a business entity, who performs labor or services for a contracting business.” Many individual workers are, by definition, also sole proprietors if they have not incorporated their business.
UPDATE: AB 5 has passed the Senate and has been signed into law by the Governor.