What does this mean to our clients:
As of July 1, 2020 for workers’ compensation (under AB5), to prove independent contractor status an hiring entity must satisfy the following conditions referred to as the ABC test:

The ABC test focuses equally on the following three components and presumes that a worker is an employee of the hirer unless the hirer can prove all three: A, B and C:

  • A: the worker – both under contract and in fact – performs the work free from the direction and control of the hirer;
  • B: the worker performs work that is outside the usual course of the hirer’s business; and
  • C: the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

Under the new law, District Attorneys and the State Attorney General can sue companies for violating “employee” rights identified as independent contractors whereas under past law, only the injured worker could do so. These public entities will become the enforcers of the law.

Under the new law, there are “excluded professions” where workers generally work with, and set their prices directly with, their customers. These include:

  • doctors, dentists, and veterinarians;
  • lawyers, architects, engineers, private investigators, and accountants;
  • securities broker-dealers and investment advisers;
  • human resources administrators;
  • travel agents;
  • marketers, graphic designers, grant writers, fine artists, certain photographers or photojournalists, and certain freelance writers and editors; and

There are also several classifications of exemptions that carry certain conditions

For example:

  • Commercial fishermen are exempt from all requirements except from unemployment insurance;
  • Estheticians, electrologists, manicurists, barbers, and cosmetologists are exempt but only if they set their own rates, are paid directly by clients, schedule their own appointments, and follow several other requirements more akin to independent workers than employees; and
  • Salespersons are exempt, but their pay must be based on actual sales as opposed to wholesale purchases or referrals.

What do you and our clients need to do:

  1. California businesses should consider conducting a thorough review of their operations post-Dynamex. Any workers currently classified as independent contractors should be reexamined utilizing the new “ABC test” and reclassified accordingly and by not later than January 1, 2020 (and by not later than July 1, 2020 for workers’ compensation purposes).
  2. Businesses should report any reclassified employees to their agent or insurance carrier’s underwriting dept. in time to ensure that reclassified employees are covered by a policy of workers’ compensation insurance by not later than July 1, 2020, irrespective of policy inception/renewal date.
  3. Businesses must remain aware that a failure to properly classify employees may raise issues in addition to and potentially more costly than failing to obtain workers’ compensation coverage for their misclassified employees (e.g., wage and hour violations).

*Content permissibly sourced from Jim Fessenden, Partner at Fisher Phillips, PacificComp and Allianz Insurance Carriers