As has been widely reported and discussed, the California State Assembly passed Assembly Bill 5, and Governor Newsom signed, which codified the California Supreme Court’s ABC Test for when a worker is to be considered an “employee” versus when a worker is considered to be an “independent contractor.” See Cal. Lab. Code, §2750.3. The ABC Test was first adopted in the case of Dynamex Operations West v. Superior Court, 4 Cal.5th 903 (Cal. Supreme Court 2018).
Under the ABC Test as set forth in the Dynamex case, a worker is an employee unless the employer can show that all three of the following apply to the worker and the work done:
- The worker is free from the control and direction of the employer;
- The worker is doing work that is not part of the core business of the employer; and
- The worker is doing work that is done by those who are in a customarily independently established trade, occupation, or business
If a worker does not satisfy all three parts of the test, then the worker must be classified as an “employee” and the worker is entitled to all of the protections of California law with respect to employees. These protections include minimum wage, rest and meal breaks, the right to workers’ compensation, and more. The new law makes the Dynamex ABC Test part of the Labor Code.
However, the new law creates a number of exceptions or exemptions. There are basically three categories of exemptions:
- Certain occupations are exempted
- Certain workers are exempt if they are providing “professional services” and
- Workers providing “business-to-business” services are exempted
This article discusses the first category as the latter two categories require a lengthy exposition. Exemptions under the codified ABC Test are complex and it is important to retain an experienced San Diego corporate attorney to provide advice and counsel.
The following are exempt occupations. Note that in nearly all cases, licensure under California laws and regulations is required. That is, the exemption only applies if the worker is licensed and licensed in California.
- Insurance agents
- Physicians and surgeons
- Architect and engineers
- Private investigators
- Realtors and real estate agents
- Securities broker-dealer
- Investment adviser or their agents and representatives
- Direct sales salesperson
- Commercial fisherman
- Repo workers (those engaged in repossession services)
- Newspaper delivery services (one-year temporary exemption)
Among the reasons that exemptions are complicated under the codified ABC Test is that it is not sufficient for these workers to be engaged in these occupations. The workers must also be “independent contractors” as defined by the common law under older California Supreme Court case law, in particular, the test set out in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (Cal. Supreme Court 1989). Essentially, the Borello test is an analysis of various “control factors.” If the employer exercises sufficient control over the “manner and means of accomplishing” the work, then the worker is an “employee.” Thus, even if the worker is in an exempt occupation under the ABC, to be an independent contractor, the worker must still meet the Borello Test. If the employer exercises too much control over the work done, that worker could be deemed an “employee.”
Call San Diego Corporate Law Today
For more information, call corporate attorney Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has been named as “Best of the Bar” by the San Diego Business Journal for the last four years. Mr. Leonard has extensive experience in drafting employee policies, employee handbooks, employment contracts, and all other contracts and agreements necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.