Are you a full-time employee or an independent contractor?
Employers and business owners have been scrambling to answer that question since last year, when the California Supreme Court issued a landmark decision establishing a three-part test to determine if workers are employees or contractors. Now a state bill, Assembly Bill 5, having already passed a vote in the assembly, could give some employers more reason to worry. And certain industries could be more impacted than others.
The bill would codify the court’s three-part test as well as clarify its application, according to the office of its author Assemblywoman Lorena Gonzalez, D-San Diego. The goal of the decision and the bill is to end employers’ misclassifying workers as contractors to avoid paying them benefits and covering other employment-related costs.
The court found workers can only be classified as independent contractors if:
A: The worker is “free from the control and direction” of the company that hired them while they perform their work.
B: The worker is performing work that falls “outside the hiring entity’s usual course or type of business.”
And C: The worker has their own independent business or trade beyond the job for which they were hired.
If a worker does not satisfy all three steps, they would be considered employees and treated as such under the law.
The case that gave rise to AB 5, Dynamex Operations West, Inc. v. Superior Court of Los Angeles, stemmed from a 2004 lawsuit filed against a package and document delivery company which converted all of its delivery drivers from employees of the company to independent contractors. According to the decision, drivers were required to provide their own vehicles, pay for fuel, tolls, maintenance and other expenses as well as worker’s compensation insurance.
The high court sided with the drivers and classified them as employees, adopting the ABC test. While workers like those at Dynamex would benefit from the bill, other industries, including truck drivers, freelance workers and more are seeking exemptions from the law. They argue their contractor status is central to their jobs and they do not want to be lashed to one company as employees.
Physicians and surgeons have lobbied for and received an amendment to the bill that would exempt them for the ABC test.
“In the North Bay, you have a large geographic area and you may have physicians covering large areas,” said Anthony York, the communications director at the California Medical Association, which represents more than 44,000 physicians statewide and is neutral on the bill.
“They may have privileges with a number of different hospitals and may practice in a number of different places just to meet the regional needs,” he said of some physicians. The bill also contains carve-outs for engineers, insurance agents, architects, real estate agents, dentists, lawyers, hairstylists and barbers who rent chair space at salons, and others.
Trucking is one industry that has yet to receive the nod from the bill’s author, however.
Independent owner-operators are “a huge part of trucking,” said Chris Shimoda, vice president of government relations at the California Trucking Association.
He said his group remains opposed to the bill unless it is amended to allow small trucking operators to freely contract with companies that need freight shipped, adding they do not want to be employees and value their independence.