AB 5 was enacted into law on September 18th of 2019 as Chapter 296 and its provisions went into effect on January 1, 2020.
In Section 1 of the bill, there are a number of statements of legislative intent that are uncodified. The purpose of these findings and declarations is to set forth the Legislature’s intent to codify the Dynamex ruling and to clarify its application to specific circumstances, essentially providing that a person providing labor or services for payment shall be considered an employee, rather than an independent contractor, unless the hiring entity demonstrates that there’s no violation of any of the three prongs of the ABC test. So what are the three prongs of the ABC test?
The A prong is that the person is free from the control and direction of the hiring entity in connection with the performance of the work. The B prong is that the person performs work that is outside the usual course of the hiring entity’s business. The C prong is that the person is customarily engaged in an independently‑established trade, occupation, or business. If a court determines that the ABC test should not apply, or if the Legislature grants an industry an exception, then the employee/independent contractor status must be governed by the Borello test.
Exempt occupations include, among others, licensed insurance agents, certain licensed healthcare professionals, registered securities brokers, dealers, and investment advisers, direct sales salespersons, licensed real estate individuals, agents, and brokers, commercial fishermen, workers providing licensed barbering or cosmetology services, and others performing work under a contract for professional services with another business entity, or pursuant to a subcontract in the construction industry.
Another provision of the bill, included in the last set of amendments, authorizes an action for injunctive relief to prevent employee misclassification. Those cases may be brought by the Attorney General or specified local prosecutorial entities.
The bill also states that specified labor code provisions apply retroactively to existing claims and actions to the maximum extent permitted by law, while other provisions apply to work performed on or after January 1, 2020.
Finally, the bill provides that the measure’s provisions do not permit an employer to reclassify an individual who was an employee on January 1st, 2019 into an independent contractor, due to the enactment of AB 5.
You can the transcript of today’s podcast here.