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California Adopts “ABC Test” for Employee Classification

As the 2019 California Legislative Session has concluded, AB 5 (Gonzalez) was enacted as Chapter 296 on September 18, 2019. The bill’s provisions take effect on January 1, 2020, and they are for provisions of the Labor Code, Unemployment Insurance Code, and Industrial Welfare Commission Wage Orders. This article examines the new law’s major provisions.

Summary of Provisions

In Section One[1] of the bill, there are a number of statements of legislative intent that are not codified. The purpose of these “findings and declarations” is to set forth the Legislature’s intent to codify the Dynamex ruling and to clarify its application to specific circumstances. First, the bill codifies the Dynamex decision that essentially provides that a person providing labor or services for payment shall be considered an employee, rather than an independent contractor, unless the hiring entity demonstrates that there is no violation of any prongs of the ABC Test.

The ABC Test in Dynamex essentially provides that a person can only be an independent contractor is all three prongs are met: (A) the person is free from the control and direction of the hiring entity in connection with the performance of the work, (B) the person performs work that is outside the usual course of the hiring entity’s business, and (C) the person is customarily engaged in an independently established trade, occupation or business.

Then the bill states that, notwithstanding this ABC Test, any statutory exception from employment status or any extension of employer status or liability remains in effect and that, if a court rules that the 3-part test cannot be applied, then the determination of employee or independent contractor status shall be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello).

Thereafter, AB 5 sets forth more than thirty exemptions from the ABC Test. The bill exempts specified occupations from the application of Dynamex and instead provides that these specified occupations are governed by the Borello multi-factor test for determining the proper classification of workers.

These exempt occupations include, among others, licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.

The bill also requires the Employment Development Department, on or before March 1, 2021, and each March 1 thereafter, to issue an annual report to the Legislature on the use of unemployment insurance in the commercial fishing industry. The bill makes the exemption for commercial fishermen applicable only until January 1, 2023, and the exemption for licensed manicurists applicable only until January 1, 2022.

A new provision of the bill, in the last set of amendments, authorize an action for injunctive relief to prevent employee misclassification to be brought by the Attorney General and specified local prosecuting agencies.

AB 5 also recasts the definition of “employee” for purposes of unemployment insurance provisions to include an individual providing labor or services for remuneration who has the status of an employee rather than an independent contractor, unless the hiring entity demonstrates that the individual meets all of the specified conditions, including that the individual performs work that is outside the usual course of the hiring entity’s business.

Of important note as well is that AB 5 states that the bill’s provisions do not constitute a change in, but are declaratory of, existing law with regard to violations of the Labor Code relating to Wage Orders of the Industrial Welfare Commission. The bill also states that specified Labor Code provisions of the bill apply retroactively to existing claims and actions to the maximum extent permitted by law while other provisions apply to work performed on or after January 1, 2020.

Finally, the bill provides that the bill’s provisions do not permit an employer to reclassify an individual who was an employee on January 1, 2019, to an independent contractor due to the bill’s enactment.

Findings and Declarations

While the findings are uncodified, they are nonetheless helpful in understanding the points of view of the author and sponsors of AB 5. Note, too, that Assembly Member Gonzalez submitted a Letter to the Assembly Daily Journal.

Similar to the views of the California Supreme Court, Assembly Member Gonzalez “cited the harm to misclassified workers who lose significant protections, the unfairness to employers who must compete with companies that misclassify, and the loss to the state of needed revenue from companies that use misclassification to avoid obligations such as payment of payroll taxes, payment of premiums for workers’ compensation, Social Security, unemployment, and disability insurance.”[2]

The findings also declare the Legislature’s intent to codify provisions of the Dynamex decision and “clarify the decision’s application in state law.”[3] By doing so, the Legislature intends for this bill to “restore[] these important protections to potentially several million workers who have been denied these basis workplace rights that all employees are entitled to under the law.”[4]

In an effort to combat one of the arguments made by opponents to the bill, the author states that “nothing in this act is intended to diminish the flexibility of employees to work part-time or intermittent schedules or to work for multiple employers.”[5]

Codifying the “ABC Test”

The bulk of AB 5 is dedicated to adding an entirely new section to the California Labor Code[6] to codify the Dynamex decision and to set forth more than thirty “exemptions” from that test. In the first subdivision, the bill specifies that the ABC Test is applicable to provisions of the Labor Code, the Unemployment Insurance Code, and the Wage Orders issued by the Industrial Welfare Commission.[7]

This new subdivision establishes that a person providing labor or services for payment shall be considered an employee and not as an independent contractor, unless the hiring entity demonstrates all three prongs of the ABC Test are satisfied.[8] The new code section takes the exact language as enumerated by the California Supreme Court in the Dynamex decision:

(A) 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.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.[9]

Thereafter, the new statute provides that, despite the ABC Test, any exceptions to the terms “employee,” “employer,” “employ,” or “independent contractor” that are found in the Labor Code, Unemployment Insurance Code, or in an applicable order of the IWC shall remain in effect.[10]

 If a civil court decides that the ABC Test cannot be applied to a particular context on grounds other than an express exception, then the determination of employee or independent contractor statute in that context is to be governed by the California Supreme Court’s decision in S.G. Borello & Sons v. Dept. of Industrial Relations[11].[12]

Occupations Exempted from ABC Test

Next, the statute begins its lengthy list of exceptions to the ABC Test, which will instead be subject to the Borello factors. Specifically, the statute provides the holding in Dynamex does not apply to the following occupations and, rather, the determination of employee or independent contractor statute for individuals in those occupations shall be governed by Borello.[13] The following occupations are then listed:

  • A person or organization who is licensed by the Department of Insurance[14].[15]

  • A physician and surgeon, dentist, podiatrist, psychologist, or veterinarian licensed[16] by the State of California who performs professional or medical services[17] provided to or by a health care entity.[18]

  • An individual who holds an active license from the State of California and is practicing one of the following recognized professions: lawyer, architect, engineer, private investigator, or accountant.[19]

  • A securities broker-dealer or investment advisory or their agents and representatives that are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority or licensed by the State of California[20].[21]

  • A direct salesperson as described in the UI Code[22] so long as the conditions required for exclusion from employment are met.[23]

  • A commercial fisherman working on an American vessel.[24] This subdivision provides definitions of “American vessel,” “commercial fisherman,” and “working on an American vessel.” There are also specified reporting requirements to be made annually to the Legislature. And it is subject to becoming inoperative on January 1, 2023, unless extended by the Legislature.

Professional Services Exemption

Next, that is set forth in the statute is the exemption for “professional services.”[25] This subdivision provides that the Dynamex holding does not apply to these specified professional services and instead the determination of proper worker classification shall be governed by the Borello factors so long as the hiring entity demonstrates that all of the specified factors are met. All of the following factors must be met in order for the individual to be exempt from the ABC Test:

  • The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity. Nothing in this subdivision prohibits an individual from choosing to perform services at the location of the hiring entity.[26]

  • If work is performed more than six months after the effective date of this section, the individual has a business license, in addition to any required professional licenses or permits for the individual to practice in their profession.[27]

  • The individual has the ability to set or negotiate their own rates for the services performed.[28]

  • Outside of project completion dates and reasonable business hours, the individual has the ability to set the individual’s own hours.[29]

  • The individual is customarily engaged in the same type of work performed under contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work.[30]

  • The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.[31]

In addition, the subdivision defines “individual” and “professional services.” An individual under this subdivision is defined to “include[] an individual providing services through a sole proprietorship or other business entity.”[32] And professional services are defined as those “services that meet any of the following”[33]:

  • Marketing, provided that the contracted work is original and creative in character and the result of which depends primarily on the invention, imagination, or talent of the employee or work that is an essential part of or necessarily incident to any of the contracted work.[34]

  • Administrator of human resources, provided that the contracted work is predominantly intellectual and varied in character and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time.[35]

  • Travel agent services provided by either a person regulated by the Attorney General[36] or an individual who is a seller of travel[37].[38]

  • Graphic design.[39]

  • Grant writer.[40]

  • Fine artist.[41]

  • Services provided by an enrolled agent who is licensed by the United States Department of the Treasury to practice before the Internal Revenue Service[42].[43]

  • Payment processing agent through an independent sales organization.[44]

  • Services provided by a still photographer or photojournalist who do not license content submissions to the putative employer more than 35 times per year.[45]

  • Services provided by a freelance writer, editor, or newspaper cartoonist who does not provide content submissions to the putative employer more than 35 times per year.[46]

  • Services provided by a licensed esthetician, licensed electrologist, licensed manicurist, licensed barber, or licensed cosmetologist provided that the individual meets specified rules including setting their own rates and hours of work.[47]

Additional Exemptions

AB 5 then proceeds to add another set of professions to which the holding in Dynamex does not apply. These are occupations that are subject to the California Business and Professions Code.[48] The following are the professions provided an exemption from the ABC Test:

  • A real estate licensee licensed by the State of California[49] for whom the determination of employee or independent contractor status shall be governed by the Business and Professions Code.[50] There are special rules is this section is not applicable.[51] Note that the statutorily imposed duties of a responsible broker[52] are not factors to be considered under the Borello test.[53]

  • A repossession agency[54] for whom the determination of employee or independent contractor status shall be governed by the Business and Professions Code[55] if the repossession agency is free from the control and direction of the hiring person or entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.[56]

Business-to-Business Exemption

The next category of exemptions to the ABC Test are for bona fide business-to-business contracting relationships[57]. These relationships must meet the following conditions in order to not be subject to the holding in Dynamex:

If a business entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation[58] contracts to provide services to another such business[59], the determination of employee or independent contractor status of the business services provider shall be governed by the Borello factors.[60] But this will only be the case if the “contracting business” demonstrates that all of the following criteria are satisfied:

* The business service provider is free from the control and direction of the contracting business entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.[61]

* The business service provider is providing services directly to the contracting business rather than to customers of the contracting business.[62]

* The contract with the business service provider is in writing.[63]

* If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration.[64]

* The business service provider maintains a business location that is separate from the business or work location of the contracting business.[65]

* The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.[66]

* The business service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity.[67]

* The business service provider advertises and holds itself out to the public as available to provide the same or similar services.[68]

* The business service provider provides its own tools, vehicles, and equipment to perform the services.[69]

* The business service provider can negotiate its own rates.[70]

* Consistent with the nature of the work, the business service provider can set its own hours and location of work.[71]

* The business service provider is not performing the type of work for which a license from the Contractor’s State License Board is required[72].[73]

In addition, AB 5 provides that the business-to-business exemption does not apply to an individual worker, as opposed to a business entity, who performs labor or services for a contracting business.[74] Instead, the determination of whether an individual working for a business service provider is an employee or independent contractor of the business service provider is governed by Subdivision (a)(1) of Section 2750.3.[75]

Finally, there is a clause that specifies this subdivision does not alter or supersede any existing rights under Labor Code Section 2810.3, which provides statutory joint employer liability for wages paid and workers’ compensation coverage provided to contracted employees.[76]

Construction Industry Exemption

AB 5 also provides special rules for subcontracting in the construction industry. The Dynamex holding does not apply to the relationship between a contractor and an individual performing work pursuant to a subcontract in the construction industry. Instead, the determination of whether the individual is an employee of the contractor shall be governed by the Labor Code[77] and the Borello test.[78], The contractor must demonstrate that all the following criteria are satisfied:

* The subcontract is in writing.[79]

* The subcontractor is licensed by the Contractors State License Board and the work is within the scope of that license.[80]

* If the subcontractor is domiciled in a jurisdiction that requires the subcontractor to have a business license or business tax registration, the subcontractor has the required business license or business tax registration.[81]

* The subcontractor maintains a business location that is separate from the business or work location of the contractor.[82]

* The subcontractor has the authority to hire and to fire other persons to provide or to assist in providing the services.[83]

* The subcontractor assumes financial responsibility for errors or omissions in labor or services as evidenced by insurance, legally authorized indemnity obligations, performance bonds, or warranties relating to the labor or services being provided.[84]

* The subcontractor is customarily engaged in an independently established business of the same nature as that involved in the work performed.[85]

There is a limitation for which a subcontractor providing construction trucking services for which a contractor’s license is not required[86], so long as additional criteria are satisfied.[87] In addition, for work performed after January 1, 2020, any business entity that provides construction trucking services to a licensed contractor utilizing more than one truck shall be deemed the employer for all drivers of those trucks.[88]

“Construction trucking services” is defined as “hauling and trucking services provided in the construction industry pursuant to a contract with a licensed contractor utilizing vehicles that require a commercial driver’s license to operate or have a gross vehicle weight rating of 26,001 or more pounds”.[89] Note that this section only applies to work performed before January 1, 2022.[90]

Finally, as it applies to this specific exemption, there is no prohibition on an individual who owns their truck from working as an employee of a trucking company and utilizing that truck in the scope of that employment. [91] An individual employee providing their own truck for use by an employer trucking company shall be reimbursed by the trucking company for the reasonable expense incurred for the use of the employee-owned truck.[92]

Referral Agency Exemption

The final exemption contained in AB 5 applies to the relationship between a referral agency and a service provider.[93] It provides that the holding in the Dynamex case will not apply so long as the following conditions are met:

If a business entity formed as a sole proprietor, partnership, limited liability company, limited liability partnership, or corporation[94] provides services to clients through a referral agency, the determination whether the service provider is an employee of the referral agency shall be governed by Borello test[95]. The referral agency must demonstrate that all of the following criteria are satisfied:

* The service provider is free from the control and direction of the referral agency in connection with the performance of the work for the client, both as a matter of contract and in fact.[96]

* If the work for the client is performed in a jurisdiction that requires the service provider to have a business license or business tax registration, the service provider has the required business license or business tax registration.[97]

* If the work for the client requires the service provider to hold a state contractor’s license[98], the service provider has the required contractor’s license.[99]

* The service provider delivers services to the client under service provider’s name, rather than under the name of the referral agency.[100]

* The service provider provides its own tools and supplies to perform the services.[101]

* The service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed for the client.[102]

* The service provider maintains a clientele without any restrictions from the referral agency and the service provider is free to seek work elsewhere, including through a competing agency.[103]

* The service provider sets its own hours and terms of work and is free to accept or reject clients and contracts.[104]

* The service provider sets its own rates for services performed, without deduction by the referral agency.[105]

* The service provider is not penalized in any form for rejecting clients or contracts. However, this subparagraph does not apply if the service provider accepts a client or contract and then fails to fulfill any of its contractual obligations.[106]

This subdivision contains definitions for “animal services,” “client,” “referral agency,” “referral agency contract.” “service provider,” and “tutor.”[107] It also specified that this subdivision does not apply to an individual worker, as opposed to a business entity, who performs services for a client through a referral agency.[108]

Motor Club Exemption

AB 5 also provides an exemption from the holding in Dynamex for the relationship between a motor club holding a certificate of authority[109] and an individual performing services pursuant to a contract between the motor club and a third party to provide motor club services utilizing the employees and vehicles of the third party.[110] In this situation, the determination whether an individual is an employee of the motor club shall be governed by the Borello test, if the motor club demonstrates that the third party is a separate and independent business from the motor club.[111]

Effective Date

AB 5 provides that Subdivision (a) of the Labor Code Section 2750.3 “does not constitute a change in, but is declaratory of, existing law with regard to wage orders of the Industrial Welfare Commission and violations of the Labor Code relating to wage orders.”[112] In addition, the new subdivisions (b), (c), (d), (e), (f), (g), and (h) shall apply retroactively to existing claims and actions to the maximum extent permitted by law.[113]

In addition, the provisions of this new Labor Code section generally apply to work performed on or after January 1, 2020.[114]

Public Enforcement Mechanism

AB 5 also provides, in addition to any other remedies available, an action for injunctive relief to prevent the continued misclassification of employees as independent contractors may be prosecuted against the putative employer in a court of competent jurisdiction by the Attorney General or by a city attorney of a city having a population in excess of 750,000, or by a city attorney in a city and county or, with the consent of the district attorney, by a city prosecutor in a city having a full-time city prosecutor in the name of the people of the State of California upon their own complaint or upon the complaint of a board, officer, person, corporation, or association.[115]

In Section Three[116] of the bill, the Labor Code[117] provides a definition of “employee,” which generally means “every person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed, and includes” certain specified individuals. An additional individual specified is one “who is an employee pursuant to [Labor Code] Section 2750.3.”[118]

In Section Four[119] of the bill, there is an amendment to the Unemployment Insurance Code to specify that the “ABC Test” is to be utilized. UIC Section 606.5(a) was amended to strike the requirement that the common law rules applicable to determining the employer-employee relationship govern the determination of whether an individual or entity is the employer of specific employees. This is done by referencing changes made to UIC Section 621(b).

In Section Five[120] of the bill, the definition of “employee” was amended. This definition is for purposes of unemployment compensation and is found in the Unemployment Insurance Code. Specifically, UIC Section 621(b) was amended to delete reference to the “usual common law rules applicable in determining the employer-employee relationship.” Instead, the bill added the “ABC Test” for purpose of the UI Code.

In Section Six[121] of the bill, it prohibits an employer from reclassifying an individual who was an employee on January 1, 2019.

Author’s Letter to the Journal

Assembly Member Gonzalez submitted a letter to the Assembly Daily Journal expressing her intent regarding AB 5. This letter is set forth below:

Dear Mr. Wilson:

I am writing to clarify the intent of Ab 5. The fundamental purpose of AB 5 is to codify the California Supreme Court’s unanimous decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex) and clarify the decision’s application in state law. Additionally, AB 5 provides that, for specified occupations and situations, the applicable test for determining if an individual is an employee or an independent contractor is the test set forth in the California Supreme Court decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello) or relevant statute.

It is not the intent of AB 5 to distinguish between “platform” and “brick and mortar” businesses. Both types of businesses rely on individuals to perform work as part of the usual course of business.

One of the provisions of AB 5 addresses business-to-business contracting. Specifically, Subdivision (e) of Section 2750.3 provides that the holding in Dynamex and subdivision (a) of Section 2750.3 do not apply to a bona fide business-to-business contracting relationship if certain criteria are satisfied and, instead the determination of employee or independent contractor status of the business services provider is governed by Borello. Importantly, while this provision exempts certain bona fide business-to-business contracting relationships from the holding in Dynamex if the criteria are satisfied, subdivision (e) is not intended to suggest, by negative implication, that the business service provider is necessarily an employee if those criteria are not satisfied.

Additionally, AB 5 is not intended to replace, alter, or change joint employer liability between two businesses. AB 5 is focused upon the determination whether an individual is an employee or an independent contractor.

It is the intent of AB 5 that subdivision (a) of the bill and the holding in Dynamex do not apply to a physician and surgeon, dentist, podiatrist, psychologist or veterinarian (Licensees), but that the holding in Borello applies to the Licensees. The September 6, 2019 amendments to AB 5 include language in Section 2750.3(b)92) stating that Dynamex shall apply to Licensees in some limited instances. The intent of AB 5 is to apply Dynamex to current or potential collective bargaining agreements in settings that allow for the employment of these licensees. The version of AB 5 amended September 6, 2019 has language in Section 2750.3(b)(2) that fails to capture the intent of the author due to a drafting error and erroneously applies Dynamex to employment settings and not collective bargaining agreements. The language as of September 6, 2019 is not accurate. It is my intent to fix this drafting error by introducing a bill to amend Labor Code Section 2750.3(b)(2).

In an effort to provide as much certainty as possible moving forward, I am committed to working collaboratively with the labor and business communities to develop additional language regarding the applicability of Dynamex in 2020 and to pursue legislation that further clarifies the law.

Thank you for this opportunity to clarify the intent of AB 5.

Sincerely,
Lorena Gonzalez
Assemblywoman, 80th District

Signing Message

When Governor Newsom signed AB 5 into law on September 18, he included a signing message, which reads as follows:

To Members of the California Assembly:

Assembly Bill 5 is landmark legislation for workers and our economy. It will help reduce worker misclassification – workers being wrongly classified as “independent contractors,” rather than employees, which erodes basic worker protections like the minimum wage, paid sick days, and health insurance benefits.

The hollowing of our middle-class has been 40 years in the making, and the need to create lasting economic security for our workforce demands action. Assembly Bill 5 is an important step. A next step is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work – all while preserving flexibility and innovation.

In this spirit, I will convene leaders from the Legislature, the labor movement and the business community to support innovation and a more inclusive economy by stepping in where the federal government has fallen short and granting workers excluded from the National Labor Relations Act the right to organize and collectively bargain.

Sincerely,
Gavin Newsom
Governor

Conclusion

The enactment of AB 5 is one of the most significant and far-reaching bills enacted during the 2019 California Legislative Session. The author and proponents of the measure, along with Governor Newsom, have all agreed to continue negotiations over the statutory language put in place by AB 5. The business community will pursue additional exemptions for specified lines of business, as well as the broader business-to-business exemption to allow more companies to qualify for the statutory language.


[1] SECTION 1.  “The Legislature finds and declares all of the following:

(a) On April 30, 2018, the California Supreme Court issued a unanimous decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex).

(b) In its decision, the Court cited the harm to misclassified workers who lose significant workplace protections, the unfairness to employers who must compete with companies that misclassify, and the loss to the state of needed revenue from companies that use misclassification to avoid obligations such as payment of payroll taxes, payment of premiums for workers’ compensation, Social Security, unemployment, and disability insurance.

(c) The misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality.

(d) It is the intent of the Legislature in enacting this act to include provisions that would codify the decision of the California Supreme Court in Dynamex and would clarify the decision’s application in state law.

(e) It is also the intent of the Legislature in enacting this act to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers’ compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave. By codifying the California Supreme Court’s landmark, unanimous Dynamex decision, this act restores these important protections to potentially several million workers who have been denied these basic workplace rights that all employees are entitled to under the law.

(f) The Dynamex decision interpreted one of the three alternative definitions of “employ,” the “suffer or permit” definition, from the wage orders of the Industrial Welfare Commission (IWC). Nothing in this act is intended to affect the application of alternative definitions from the IWC wage orders of the term “employ,” which were not addressed by the holding of Dynamex.

(g) Nothing in this act is intended to diminish the flexibility of employees to work part-time or intermittent schedules or to work for multiple employers.”

[2] Section One, Subdivision (b).

[3] Section One, Subdivision (d).

[4] Section One, Subdivision (e).

[5] Section One, Subdivision (g).

[6] Section 2750.3 is added to the Labor Code.

[7] Labor Code Section 2750.3(a)(1).

[8] Note that the statute does not specify the level of which is required, such as by a preponderance of the evidence.

[9] Id.

[10] Labor Code Section 2750.3(a)(2).

[11] (1989) 48 Cal.3d 341 (Borello).

[12] Labor Code Section 2750.3(a)(3).

[13] Labor Code Section 2750.3(b).

[14] Pursuant to Chapter 5 (commencing with Section 1621), Chapter 6 (commencing with Section 1760), or Chapter 8 (commencing with Section 1831) of Part 2 of Division 1 of the Insurance Code.

[15] Labor Code Section 2750.3(b)(1).

[16] Pursuant to Division 2 (commencing with Section 500) of the Business and Professions Code.

[17] Note that this subdivision contains the following clause: “Nothing in this subdivision shall apply to the employment settings currently or potentially governed by collective bargaining agreements for the licensees identified in this paragraph.”

[18] Labor Code Section 2750.3(b)(2).

[19] Labor Code Section 2750.3(b)(3).

[20] Under Chapter 2 (commencing with Section 25210) or Chapter 3 (commencing with Section 25230) of Division 1 of Part 3 of Title 4 of the Corporations Code.

[21] Labor Code Section 2750.3(b)(4).

[22] Section 650 of the UIC.

[23] Labor Code Section 2750.3(b)(5).

[24] Labor Code Section 2750.3(b)(6).

[25] Labor Code Section 2750.3(c).

[26] Labor Code Section 2750.3(c)(1)(A).

[27] Labor Code Section 2750.3(c)(1)(B).

[28] Labor Code Section 2750.3(c)(1)(C).

[29] Labor Code Section 2750.3(c)(1)(D).

[30] Labor Code Section 2750.3(c)(1)(E).

[31] Labor Code Section 2750.3(c)(1)(F).

[32] Labor Code Section 2750.3(c)(2)(A).

[33] Labor Code Section 2750.3(c)(2)(B).

[34] Labor Code Section 2750.3(c)(2)(B)(i).

[35] Labor Code Section 2750.3(c)(2)(B)(ii).

[36] Pursuant to Article 2.6 (commencing with Section 17550) of Chapter 1 of Part 3 of Division 7 of the Business and Professions Code.

[37] Within the meaning of subdivision (a) of Section 17550.1 of the Business and Professions Code and who is exempt from the registration under subdivision (g) of Section 17550.20 of the Business and Professions Code.

[38] Labor Code Section 2750.3(c)(2)(B)(iii).

[39] Labor Code Section 2750.3(c)(2)(B)(iv).

[40] Labor Code Section 2750.3(c)(2)(B)(v).

[41] Labor Code Section 2750.3(c)(2)(B)(vi).

[42] Pursuant to Part 10 of Subtitle A of Title 31 of the Code of Federal Regulations.

[43] Labor Code Section 2750.3(c)(2)(B)(vii).

[44] Labor Code Section 2750.3(c)(2)(B)(viii).

[45] Labor Code Section 2750.3(c)(2)(B)(ix).

[46] Labor Code Section 2750.3(c)(2)(B)(x).

[47] Labor Code Section 2750.3(c)(2)(B)(xi).

[48] Labor Code Section 2750.3(d).

[49] Pursuant to Division 4 (commencing with Section 10000) of the Business and Professions Code.

[50] See subdivision (b) of Section 10032 of the Business and Professions Code.

[51] Id.

[52] Pursuant to Section 10015.1 of the Business and Professions Code.

[53] Labor Code Section 2750.3(d)(1).

[54] Licensed pursuant to Section 7500.2 of the Business and Professions Code.

[55] See Section 7500.2 of the Business and Professions Code.

[56] Labor Code Section 2750.3(d)(2).

[57] Labor Code Section 2750.3(e).

[58] Which is deemed to be a “business service provider”.

[59] Which is deemed to be a “contracting business”.

[60] Labor Code Section 2750.3(e)(1).

[61] Labor Code Section 2750.3(e)(1)(A).

[62] Labor Code Section 2750.3(e)(1)(B).

[63] Labor Code Section 2750.3(e)(1)(C).

[64] Labor Code Section 2750.3(e)(1)(D).

[65] Labor Code Section 2750.3(e)(1)(E).

[66] Labor Code Section 2750.3(e)(1)(F).

[67] Labor Code Section 2750.3(e)(1)(G).

[68] Labor Code Section 2750.3(e)(1)(H).

[69] Labor Code Section 2750.3(e)(1)(I).

[70] Labor Code Section 2750.3(e)(1)(J).

[71] Labor Code Section 2750.3(e)(1)(K).

[72] See Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.

[73] Labor Code Section 2750.3(e)(1)(L).

[74] Labor Code Section 2750.3(e)(2).

[75] Labor Code Section 2750.3(e)(3).

[76] Labor Code Section 2750.3(e)(4).

[77] See Labor Code Section 2750.5.

[78] Labor Code Section 2750.3(f).

[79] Labor Code Section 2750.3(f)(1).

[80] Labor Code Section 2750.3(f)(2).

[81] Labor Code Section 2750.3(f)(3).

[82] Labor Code Section 2750.3(f)(4).

[83] Labor Code Section 2750.3(f)(5).

[84] Labor Code Section 2750.3(f)(6).

[85] Labor Code Section 2750.3(f)(7).

[86] Labor Code Section 2750.3(f)(8)(A).

[87] See Labor Code Sections 2750.3(f)(8)(A)(i) – (iv).

[88] Labor Code Sections 2750.3(f)(8)(B).

[89] Labor Code Sections 2750.3(f)(8)(C).

[90] Labor Code Sections 2750.3(f)(8)(D).

[91] Labor Code Sections 2750.3(f)(8).

[92] Id.

[93] Labor Code Sections 2750.3(g).

[94] Defined as a “service provider.”

[95] Labor Code Sections 2750.3(g)(1).

[96] Labor Code Sections 2750.3(g)(1)(A).

[97] Labor Code Sections 2750.3(g)(1)(B).

[98] Pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.

[99] Labor Code Sections 2750.3(g)(1)(C).

[100] Labor Code Sections 2750.3(g)(1)(D).

[101] Labor Code Sections 2750.3(g)(1)(E).

[102] Labor Code Sections 2750.3(g)(1)(F).

[103] Labor Code Sections 2750.3(g)(1)(G).

[104] Labor Code Sections 2750.3(g)(1)(H).

[105] Labor Code Sections 2750.3(g)(1)(I).

[106] Labor Code Sections 2750.3(g)(1)(J).

[107] Labor Code Sections 2750.3(g)(2)(A) – (F).

[108] Labor Code Sections 2750.3(g)(3).

[109] Issued pursuant to Chapter 2 (commencing with Section 12160) of Part 5 of Division 2 of the Insurance Code.

[110] Labor Code Section 2750.3(h).

[111] Id.

[112] Labor Code Section 2750.3(i)(1).

[113] Labor Code Section 2750.3(i)(2).

[114] Labor Code Section 2750.3(i)(3).

[115] Labor Code Section 2750.3(j).

[116] Which amends Section 3351 of the Labor Code, as amended by Section 33 of Chapter 38 of the Statutes of 2019.

[117] Id.

[118] This is done by adding the following subdivision: “(i) Beginning on July 1, 2020, any individual who is an employee pursuant to Section 2750.3. This subdivision shall not apply retroactively.”

[119] Which amends Section 606.5 of the Unemployment Insurance Code.

[120] SEC. 5.  “Section 621 of the Unemployment Insurance Code is amended to read:

621. “Employee” means all of the following:

(a) Any officer of a corporation.

(b) Any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. providing labor or services for remuneration has the status of an employee rather than an independent contractor unless the hiring entity demonstrates all of the following conditions: 

(1) The individual 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.

(2) The individual performs work that is outside the usual course of the hiring entity’s business.

(3) The individual is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

Repealed provisions are in strikeout and added provisions are in italics.

[121] SEC. 6.  “No provision of this measure shall permit an employer to reclassify an individual who was an employee on January 1, 2019, to an independent contractor due to this measure’s enactment.”

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TRENDING LEGAL ANALYSIS


About this Author

Chris M. Micheli, Attorney, California legislative advocate eSacramento governmental relations firm of Aprea & Micheli
Adjunct Professor

Chris Micheli is an attorney and legislative advocate for the Sacramento governmental relations firm of Aprea & Micheli, Inc. As a lobbyist in the labor and employment field, he was directly involved in the development of California’s changes to its Equal Pay Act. The Wall Street Journal (July 1998) called him "one of the top three business tax lobbyists in the state." The Los Angeles Times (May 2005) described him as an "elite lobbyist," and Capitol Weekly (August 2006) described him as a "prominent lobbyist." He received his B.A. in Political Science - Public Service (1989) from the...

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