California Business Groups Seek Legislative Help On Independent Contractors

Liz Carey

San Jose, CA (WorkersCompensation.com) – While California legislators are working to pass legislation that would redefine what workers are independent contractors, a group of California business organizations hope state legislators will amend the bill in their favor.

At stake, they say, is millions of dollars in benefits that they will have to pay if their workers become employees under the new law.

The law stems from a California Court case that narrowed the definition of an independent contractor. In Dynamex Operations West, Inc. v. Superior Court of Los Angeles, the court said employment status should be determined by a three-pronged test that looked at

  • The amount of control an employer has on a worker,
  • Whether or not the work performed is ‘outside the usual course’ of the hiring entity’s business, and
  • Whether or not the worker is engaged in similar work for others doing the same type work as it does for the hiring entity.

Previously, California labor law defined independent contractors more broadly, focusing on whether or not a company had a “right to control” how a worker performed his duties to the company. With the Dynamex decision, the courts turned a large number of freelance workers into employees.

More than 50 organizations – from the California Chamber of Commerce to the Silicon Valley Leadership Group to the Professional Independent Consultants of America and dog walking app gig economy company Rover – signed a letter sent to lawmakers asking them to amend AB 5, which would turn the court’s decision into state law.

“(Dynamex Operations West, Inc. v. Superior Court of Los Angeles) creates a presumption that a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits arising under wage orders issued by the Industrial Welfare Commission. Existing law requires a 3-part test, commonly known as the “ABC” test, to establish that a worker is an independent contractor for those purposes,” the law states. “Existing law, for purposes of unemployment insurance provisions, requires employers to make contributions with respect to unemployment insurance and disability insurance from the wages paid to their employees. Existing law defines ‘employee’ for those purposes to include, among other individuals, any officer of a corporation, and any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.

“This bill would state the intent of the Legislature to codify the decision in the Dynamex case and clarify its application. The bill would provide that the factors of the ABC’ test be applied in order to determine the status of a worker as an employee or independent contractor for all provisions of the Labor Code and the Unemployment Insurance Code, unless another definition or specification of “employee” is provided,” the bill continues.

The bill makes exceptions for certain professions “including; licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, a direct sales salesperson, real estate licensees, workers providing hairstyling or barbering services, and those performing work under a contract for professional services.”

Proponents of the bill say the growing gig economy that calls workers independent contractors necessitates the legislation in order to force companies to provide protections like workers’ compensation and unemployment insurance to their workers.

Rep. Lorena Gonzalez (D-San Diego), author of the bill, said the legislation is necessary because of the gig economy, and that individuals need the protections, like minimum hourly wage, of being an employee, instead of working three side hustles.

“Big businesses shouldn’t be able to pass their costs onto taxpayers while depriving workers of the labor law protections they are rightfully entitled to,” González tweeted Wednesday.

But opponents of the bill say the narrow definition of independent contractors will force them into rigid employment situations that are unnecessary and unwanted.

“Many independent contractors want or need the flexibility and additional income it provides, and legislation will ensure that their careers are not taken away,” the group said Wednesday in a press release. “Nearly two million Californians choose to work as independent contractors or freelancers for many reasons: flexible scheduling, quality of life, control over their work, more economic security, or simply because they enjoy it.”

The group is asking legislators to include more exemptions for professionals with advanced degrees or licensing requirement, such as therapists, speech interpreters and court reporters; for direct salespeople, such as newspaper distributors, consultants, travel agents, taxi, truck and ride-hailing drivers and writers; for business-to-business that would help sole proprietorships and partnerships in their interactions with other businesses; and for subcontractors on short-term projects.

Some members of the group were independent contractors who were opposed to the Dynamex decision.

“I chose to be an independent contractor because it works for my schedule and my other business ventures,” Johnny Uriquijo said in a statement issued by the California Chamber of Commerce. “I work hard to live in the Bay Area and I am asking legislators to fix Dynamec so I can continue to work when and where I want to. This fits best for me and I don’t want it taken away from me.”

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