AB 5: What You Need to Know
A new California law codifies the new independent contractor standard set by the California Supreme Court in Dynamex, with some new exceptions. AB 5 was signed into law on September 18, 2019. Here are its key provisions:
First, AB 5 enacts as law the “ABC” test for independent contractors set forth in 2018 in Dynamex Operations West v. Superior Court, 4 Cal. 5th 903 (2018). Under this standard, an employer seeking to classify a worker as an independent contractor must prove (A) that the worker is free from the hirer’s control and direction; (B) that the work performed is outside the hirer’s usual course of business; and (C) that the worker is “customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hirer.”
Second, AB 5 lists several professions that are exempt from the ABC test. These professions are:
- Certain medical practitioners – specifically physicians, surgeons, dentists, podiatrists, psychologists, and veterinarians.
- Certain licensed professionals – Lawyers, architects, engineers, private investigators, and accountants.
- Registered or licensed securities brokers.
- Direct sales salesperson per the Unemployment Insurance Code, Section 650.
- Commercial fisherman working on an American vessel.
A separate set of professions are exempt from the ABC test of AB 5 and Dynamex, but may still be liable for misclassification under a more relaxed standard.. Hirers of these providers of “professional services” must adhere to the older, more flexible multi-factor test for independent contractors set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989).
- Marketing professionals, if the work is “original and creative in character” and dependent on “the invention, imagination, or talent” of the worker.
- Human resources administrator, if the work is “predominantly intellectual and varied in character” and cannot be “standardized”.
- Travel agent, if the person is regulated by California Business & Professions Code section 17750, et seq., or if the person is a “seller of travel” (see Business & Professions Code sections 17550.1 and 17550.20).
- Graphic designer.
- Grant writer.
- Fine artist.
- Tax agent, enrolled and licensed to practice before the IRS.
- Payment processing agent.
- Still photographer or photojournalist, if the worker does not submit content to the same hirer more than 35 times a year.
- Freelance writer, editor, or newspaper cartoonist, if the worker does not submit content to the same hirer more than 35 times a year.
- Licensed estheticians, electrologists, manicurists, barbers, and cosmetologists, if they set their own rates and process their own payments, set their work hours, choose their clients, and have their own books of business. These must issue a Form 1099.
- Licensed real estate agents.
- Licensed repossession agencies.
- Bona fide business-to-business contracts, and bona fide construction industry subcontractor relationships. (The statute contains an extensive definition of the contours of these exceptions.)
Third, AB 5 forbids employers from reclassifying workers who were employees as of January 1, 2019 as independent contractors.
Finally, AB 5 provides criminal penalties for companies who violate the law. It also allows the state to bring civil lawsuits for violations of the law.
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