California businesses need to be careful about how they classify someone as an employee or an independent contractor. The California Supreme Court’s decision in Dynamex Operations W. V. Superior Court (4 Cal. 5th 903 (2018) (” Dynamex”) and now Assembly Bill 5 (“AB5”), which codifies Dynamex in certain industries, makes the independent contractor virtually dead.
California’s Wage Order laws are found in the California Labor Code. They highlight the importance of worker classification. These laws offer minimum-wage, overtime pay, paid time off, as well as other protections for workers in certain industries. They also impose tax and insurance payments on employers. These protections are not available to true independent contractors.
AB5 exempts the following professions:
- insurance agents, physicians, surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, private investigators, accountants, securities broker-dealers/investment advisers, direct salespersons and commercial fishermen licensed in California;
- Individuals who, through an entity provide “professional services” under contract. They must meet certain requirements .
- Real estate and repossession agents are licensed under the Business and Professions Code
- Businesses that contract with another business to provide a service, and that meet certain requirements regarding their independence.
- Individuals who are contracted to perform construction work for a contractor’s sub-contract;
- Individuals who through a business entity , contract with a “referral agent” to connect with clients. They must meet certain criteria related to independence.
Notably, workers at gig-economy companies have not been granted an exception and industry giants will continue lobbying the legislature until AB5 becomes effective. Uber, Lyft and Door Dash have each pledged $30 million to support a ballot initiative that would exempt the sector from AB5.
Businesses that employ independent contractors in California, especially those who work in fields not exempted from AB5, should consider the DynamexABC testing or face the consequences. This could mean that independent contractors will be re-catalogized as employees, providing meal breaks, overtime-pay and contributing to unemployment insurance.
Summarized from an article by Stubbs, Alderton & Markiles, LLP.
