Assembly Bill 5, codified as Labor Code Section 2750.3, went into effect on January 1, 2020. This bill adopted a new, stricter standard commonly known as the “ABC Test” for determining whether a worker can be considered an independent contractor. The advantage to the employer of using an “independent contractor,” rather than an employee, is that benefits, such as workers’ compensation, unemployment insurance, health insurance, paid leave, etc., need not be paid or provided. This can be a substantial savings for an employer.
Under the new “ABC Test,” a worker is an independent contractor only if all of the following three elements are satisfied:
(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.
Many occupations that were previously treated as independent contractors under the old longstanding tests that are now considered “employees” under the new law, include:
- Health care professionals and workers
- Rideshare, delivery service and other gig economy workers
- Truck drivers
- Janitors and housekeepers
- Performers and other entertainment professionals
- Land surveyors, landscape architects and geologists
- Translators and interpreters
A number of exemptions to the scope of the ABC Test were negotiated at the outset, including:
- Insurance agents
- Licensed health care professionals.
- Investment advisors and securities broker-dealers
- Direct sales representatives
- Real estate agents
- Commercial fishermen
- Barbers and cosmetologists
- Construction subcontractors
It is anticipated that other exemptions will be lobbied for and approved. For now, all businesses previously paying individuals as independent contractors need to return to the drawing board.