California Moving Forward with Legislation on Worker Classification

A bill is making its way through the California State legislature that would make it a lot harder for companies to label workers as independent contractors instead of employees. The bill has passed the State Assembly and now resides in the State Senate.

The California bill, known as AB5, expands a groundbreaking California Supreme Court decision last year known as Dynamex. The ruling and the bill instruct businesses to use the so-called “ABC test” to figure out whether a worker is an employee. To hire an independent contractor, businesses must prove that the worker:

  1. is free from the company’s control,
  2. is doing work that isn’t central to the company’s business, and
  3. has an independent business in that industry. If they don’t meet all three of those conditions, then they must be classified as employees.

Recently, there have been exemptions included to exempt trucking companies and owner-operators because of federal preemption under the F4A of 1994. Additionally, there is an exemption from the ABC test for “direct salespersons” which could possibly cover TIA members with sales agents in State, but this is not a forgone conclusion and a slippery slope. If this exemption for direct salesperson is included in the final version signed into law, these folks would be subject to the Borello test and not the ABC test. The Borello test is slightly better for industry folks, but still a gray area.

Specifically, the Borello test includes multiple factors to determine whether an individual was an independent contractor. Not all of the factors had to be met to establish independent contractor status. The principal factor of the Borello test was whether the “person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” The test also included nine additional factors:

  1. right to discharge at will, without cause;
  2. whether the one performing the services is engaged in a distinct occupation or business;
  3. the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  4. the skill required in the particular occupation;
  5. whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
  6. the length of time for which the services are to be performed;
  7. the method of payment, whether by the time or by the job;
  8. whether or not the work is part of the regular business of the principal; and
  9. whether or not the parties believe they are creating a relationship of employer-employee.

TIA will continue to monitor this legislation and report to membership on any relevant actions. If you have any questions, please contact or 703.299.5700.



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