Independent Contractor Legislation Moves; CalChamber, Coalition Seek More Changes

Legislation that makes a start toward restoring flexibility for numerous individuals working as independent contractors has moved from the Assembly to the Senate.

The California Chamber of Commerce and a broad-based coalition are continuing to seek amendments to AB 5 (Gonzalez; D-San Diego). The bill exempts certain industries/professions from the application of an April 2018 California Supreme Court ruling that upended the test for determining who is an independent contractor—Dynamex Operations West v. Superior Court.

As AB 5 passed the Assembly on May 29, the workers it exempts from the Dynamex decision are: doctors, insurance agents, securities brokers, direct sellers, realtors, barbers, hair stylists, and listed professionals with degrees/licensing, including lawyers, accountants, engineers, architects, marketing specialists, and human resources administrators.

The CalChamber and coalition support AB 5 if amended. They appreciate AB 5’s recognition that the Dynamex decision is not one size fits all, and agree the professions identified in the May 24 version of the bill should be exempted.

But the Legislature should not stop with selecting just a few professions and not others similarly situated. The CalChamber and coalition are seeking additional amendments that provide a more progressive and holistic approach to the application of Dynamex that reflects today’s modern workforce.

More Amendments Needed

In their May 28 letter to the Assembly, the CalChamber and coalition call for additional amendments to AB 5:

• A broader exemption for professionals. Besides the professionals AB 5 currently exempts, others who are similarly situated also should be exempted, such as therapists, speech interpreters and translators, court reporters, scientists.

These and other individuals who have advanced degrees or are licensed by the state perform work as individual contractors and want to maintain that status. These individuals choose their own hours, projects, and rate of pay.

• A broader exemption for individuals who, like direct sellers, prefer to control their own schedules. Direct sellers control their own schedules with regard to the days and hours they work and make their own decisions as to whom they sell products.

Numerous other independent contractors enjoy this same control and flexibility and should be able to maintain their status as independent contractors, including: newspaper distributors, drivers in the gig economy, taxi cab drivers, truck drivers, consultants, travel agents, repair persons, videographers, caterers, freelance writers, photographers, musicians, graphic designers.

• A business-to-business exemption. Any sole proprietor, partnership, LLC, LLP, or corporation should be able to contract with another lawful business to provide services, despite whether the services provided are within the “usual course of business.”

For example, a restaurant that contracts with a delivery company to deliver its food each week should be able to maintain that contract.

• The ability to subcontract for short-term projects. One of the main reasons companies use independent contractors is to fulfill a demand for a short-term project. Even though the company may have a full workforce, an unexpected order or contract may require immediate, extra workers to satisfy the project deadline. “Hiring up” in such a scenario does not make sense for either the company or the individual.

For example, the devastating wildfires in Northern California created an immediate need for additional independent owners/operators of trucks that could assist in hauling debris, as well as transporting tools and supplies.

Dynamex Test

Under Dynamex, the court presumes that a worker is an employee unless an individual satisfies all three factors of the ABC Test:

A. That the worker 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. That the worker performs work that is outside the usual course of the hiring entity’s business; and

C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The “B” prong of the test is the most problematic because many independent contractors work in the same line of business as the hiring entity.

Action Needed

The CalChamber is urging members to ask their Senate representatives to encourage the author of AB 5 to work with the business community to further amend her bill to protect the opportunity for millions of Californians to maintain their careers.

Failing to further amend AB 5 with the additional exemptions requested by the CalChamber and coalition has the potential to eliminate the vast majority of independent contractors in California. This not only hurts the business model of a broad swath of industries and billions of venture capital dollars that are increasingly invested in businesses, but also hinders California as a national leader in the innovation economy.

AB 5 awaits assignment to a policy committee in the Senate.

More information is available at the I’m Independent Coalition website, imindependent.co.

Staff Contact: Jennifer Barrera