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Do Directors Avoid Employee Status Under AB 5?

California's new law, AB 5, broadens the definition of "employee" by adopting the so-called A-B-C test for employment status.  Recently, I commented on the possible ramifications of classification of outside directors as employees.  AB 5 is rife with exceptions for particular operations, such commercial fishermen working on "American vessels" as defined.  The law also continues the exceptions to the term "employee" made in the California Unemployment Insurance Code.  Cal. Lab. Code § 2750.3(a)(2). 

Section 622 of the Unemployment Insurance Code provides that the term "employee” does not include a director of a corporation or association performing services in his or her capacity as a director.  There are however, several exceptions to Section 622 and the statute defines "Services in his or her capacity as a director" as including either:

  • Presence at meetings of the board of directors, even though no further service is performed at the meeting.

  • Services customarily performed by directors in attending meetings of the board of directors such as prescribing, regulating, and guiding the policies and administration of the corporation or association.

The statute also states that "Services in his or her capacity as a director" does not include services performed by a director in addition to, or other than those described above.  As an example, the statute states that "services performed as an officer of the corporation or association, or as a member of a committee which executes the policies and administrative decisions adopted by the board of directors such as advisory, appraisal, auditing, credit, examining, executive, loan or similar committees are not 'services in his or her capacity as a director'".  Thus, Section 622 is not a blanket exclusion from employee status under AB 5.

Even before the enactment of AB 5, California had enacted legislation declaring officers and directors of quasi-public and private corporations to be directors for purposes of the Workers Compensation and Insurance provisions of the Labor Code.  See Is A Corporate Director An Employee Subject To Workers' Compensation? (note that the statute has been amended twice since that post, Stats 2019 ch 38 § 33 (SB 78), effective June 27, 2019 and Stats 2019 ch 296 § 3 (AB 5), effective January 1, 2020. 

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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