Today's Law As Amended

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AB-5 Worker status: employees and independent contractors.(2019-2020)



SECTION 1.
 The Legislature finds and declares all of the following:
(a) On April 30, 2018, the California Supreme Court issued a unanimous decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903.
(b) In its decision, the Court cited the harm to misclassified workers who lose significant workplace protections, the unfairness to employers who must compete with companies that misclassify, and the loss to the state of needed revenue from companies that use misclassification to avoid obligations such as payment of payroll taxes, payment of premiums for workers’ compensation, Social Security, unemployment, and disability insurance.
(c) The misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality.
(d) It is the intent of the Legislature in enacting this act to include provisions that would codify the decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903, and would clarify the decision’s application in state law.

SEC. 2.

 Section 7500.2 of the Business and Professions Code is amended to read:

7500.2.
 (a) A repossession agency means and includes any person who, for any consideration whatsoever, engages in business or accepts employment to locate or recover collateral, whether voluntarily or involuntarily, including, but not limited to, collateral registered under the provisions of the Vehicle Code which is subject to a security agreement, except for any person registered pursuant to Article 7 (commencing with Section 7506).
(b) A repossession agency licensed pursuant to this chapter shall only transact business with another person or entity as an independent contractor. To ensure that this requirement is met, both of the following shall be satisfied: 
(1) The repossession agency shall be free from the control and direction of the hiring person or entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(2) The work that the repossession agency performs shall be outside the usual course of the hiring person or entity’s business.
(c) A repossession agency shall not allow a person or entity other than the qualified certificate holder, as provided in Section 7505.1, or the owner or officer of the repossession agency, to manage the day-to-day operations, operate, control, or transact business covered by this act, except as provided in Section 7503.3.

SEC. 3.

 Section 2750.3 is added to the Labor Code, to read:

2750.3.
 (a) Except where a statutory exemption from employment status or an exemption from a particular obligation related to employment applies or where a statutory grant of employment status or a particular right related to employment applies, for purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee unless the hiring entity demonstrates that all of the following conditions are satisfied:
(1) 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.
(2) The person performs work that is outside the usual course of the hiring entity’s business.
(3) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
(b) This section and the holding in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), do not apply to the following occupations as defined below, and instead, for these occupations only, the employment relationship shall be governed by the test adopted by the California Supreme Court in the case of S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (S. G. Borello & Sons, Inc.), or Section 7500.2 of, or subdivision (b) of Section 10032 of, the Business and Professions Code, as set forth in paragraphs (5) and (7) below.
(1) A person or organization who is licensed by the Department of Insurance pursuant to Chapter 5 (commencing with Section 1621), Chapter 6 (commencing with Section 1760), or Chapter 8 (commencing with Section 1831) of Part 2 of Division 1 of the Insurance Code.
(2) A physician and surgeon licensed by the State of California pursuant to Division 2 (commencing with Section 500) of the Business and Professions Code, performing professional or medical services provided to or by a health care entity, including an entity organized as a sole proprietorship, partnership, or professional corporation as defined in Section 13401 of the Corporations Code.
(3) A securities broker-dealer or investment adviser or their agents and representatives that are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority or licensed by the State of California under Chapter 2 (commencing with Section 25210) or Chapter 3 (commencing with Section 25230) of Division 1 of Part 3 of Title 4 of the Corporations Code.
(4) A direct sales salesperson as described in Section 650 of the Unemployment Insurance Code, so long as the conditions for exclusion from employment under that section are met.
(5) A real estate licensee licensed by the State of California pursuant to Division 4 (commencing with Section 10000) of the Business and Professions Code shall have their relationship governed by subdivision (b) of Section 10032 of the Business and Professions Code. If that section is not applicable, then classification shall be governed as follows: (1) for purposes of unemployment insurance by Section 650 of the Unemployment Insurance Code; (2) for purposes of workers compensation by Section 3200 and following; and (3) for all other purposes in the Labor Code by the test adopted by the California Supreme Court in the case of S. G. Borello and Sons, Inc. The statutorily imposed duties of a responsible broker under Section 10015.1 of the Business and Professions Code are not factors under the Borello test.
(6) A worker providing hairstyling or barbering services, an electrologist, an esthetician, or worker providing natural hair braiding, who is free from direction or control both under the contract for the performance of the work and in fact. For purposes of this subparagraph, “free from direction or control” includes, but is not limited to, the worker meets all of the following criteria:
(A) Sets their own rates for services performed, provided the rate is equal to or greater than two times the minimum wages for hours worked and is paid directly by their clients.
(B) Sets their own hours of work and has sole discretion to decide which clients from who they will provide services.
(C) Has their own book of business and schedules their own appointments.
(D) Uses their own funds to purchase requisite supplies used in connection with providing services.
(E) Maintains their own business license in connection with the services offered to clients.
(7) A repossession agency licensed pursuant to Section 7500.2 of the Business and Professions Code.
(8) The relationship between a business entity and an individual performing work pursuant to contract with another business entity to provide services to the contracting business, if the contracting business entity demonstrates that all the following criteria are satisfied:
(A) The service provider is free from the control and direction of the contracting business entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The service provider is providing services to the contracting business rather than to customers of the contracting business.
(C) The contract with the service provider is in writing.
(D) If the work is performed in a jurisdiction that requires the service provider to have a business license or business tax registration, the service provider has the required business license or business tax registration.
(E) The service provider maintains a business location that is separate from the business or work location of the contracting business.
(F) The service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.
(G) The service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity.
(H) The service provider advertises and holds itself out to the public as available to provide the same or similar services.
(I) The service provider has no other financial relationships with the contracting business.
(J) The service provider can negotiate its own rates, provided that the rate is equal to or greater than two times the minimum wage for hours worked.
(K) The service provider can set its own hours and location of work.
(L) The service provider is not performing the type of work for which a license from the Contractor’s State License Board is required, pursuant to Section 7000 and following of the Business and Professions Code.
(c) (1) This section and the holding in Dynamex do not apply to a contract for professional service and instead the employment relationship shall be governed by the test adopted by the California Supreme Court in the case of S. G. Borello & Sons, Inc., if the hiring entity demonstrates that all of the following factors are satisfied:
(A) The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity.
(B) If work is performed more than six months after the effective date of this section, the individual has a business license, in addition to any required professional licenses or permits for the individual to practice in their profession.
(C) The individual has the ability to use their own employees in the completion of the work, where reasonable, and has the authority to hire and fire other persons who assist in providing the services. Nothing in this section requires an individual to hire an employee.
(D) The individual has the ability to engage in other contracts for services than with the hiring entity.
(E) Both the individual and the hiring entity have the ability to negotiate compensation for the services performed.
(F) Outside of project completion dates and reasonable business hours, the individual has the ability to set their own hours.
(G) For services that do not reasonably have to be performed at a specific location, the individual can determine where to perform the services under the contract.
(H) The individual is customarily engaged in the same type of work performed under the contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work.
(I) The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.
(2) For purposes of this subdivision:
(A) An “individual” includes an individual providing services through a sole proprietorship or other business entity.
(B) (i) “Professional services” means services that meet any of the following:
(I) Require an active license from the State of California and involve the practice of one of the following recognized professions: law, dentistry, architecture, engineering, podiatrists, veterinarian, private investigation, or accounting.
(II) Require possession of an advanced degree that customarily involves a prolonged course of specialized intellectual instruction and study in the field of marketing or the administration of human resources from an accredited university, college, or professional school, as distinguished from a general academic education.
(III) Work that is performed by a freelance writer who does not provide content to any one publication more than 25 times per year, if that person actually sets all of the following:
(ia) Hours.
(ib) Locations.
(ic) Rate of pay for work provided, except that rate shall be equal to or greater than two times the minimum wage for hours worked.
(IV) Fine artists, professional grant writers, and graphic designers if that person actually sets the hours, locations, and rates of pay for work provided.
(ii) “Professional services” does not include professionals engaged in the fields of health care and medicine.
(d) This section and the holding in Dynamex do not apply to the relationship between a contractor and an individual performing work pursuant to a subcontract in the construction industry, and instead the employment relationship shall be governed by the test adopted by the California Supreme Court in the case of S. G. Borello & Sons, Inc., if the contractor demonstrates that all the following criteria are satisfied:
(1) The individual is free from the control and direction of the contractor in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(2) The subcontract is in writing.
(3) The subcontractor is licensed by the Contractors State License Board and the work is within the scope of that license.
(4) If the work is performed in a jurisdiction that requires the subcontractor to have a business license or business tax registration, the subcontractor has the required business license or business tax registration.
(5) The subcontractor maintains a business location that is separate from the business or work location of the contractor.
(6) The subcontractor has the authority to hire and to fire other persons to provide or to assist in providing the services.
(7) The subcontractor assumes financial responsibility for errors or omissions in labor or services as evidenced by insurance, performance bonds, or warranties relating to the labor or services being provided.
(8) The subcontractor is customarily engaged in an independently established business of the same nature as that involved in the work performed.
(e) The addition of this section to the Labor Code by this act does not constitute a change in, but is declaratory of, existing law with regard to violations of the Labor Code relating to wage orders of the Industrial Welfare Commission.

SEC. 4.

 Section 3351 of the Labor Code is amended to read:

3351.
 “Employee” means every person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed, and includes:
(a) Aliens and minors.
(b) All elected and appointed paid public officers.
(c) All officers and members of boards of directors of quasi-public or private corporations while rendering actual service for the corporations for pay. An officer or member of a board of directors may elect to be excluded from coverage in accordance with paragraph (16), (18), or (19) of subdivision (a) of Section 3352.
(d) Except as provided in paragraph (8) of subdivision (a) of Section 3352, any person employed by the owner or occupant of a residential dwelling whose duties are incidental to the ownership, maintenance, or use of the dwelling, including the care and supervision of children, or whose duties are personal and not in the course of the trade, business, profession, or occupation of the owner or occupant.
(e) All persons incarcerated in a state penal or correctional institution while engaged in assigned work or employment as defined in paragraph (1) of subdivision (a) of Section 10021 of Title 8 of the California Code of Regulations, or engaged in work performed under contract.
(f) All working members of a partnership or limited liability company receiving wages irrespective of profits from the partnership or limited liability company. A general partner of a partnership or a managing member of a limited liability company may elect to be excluded from coverage in accordance with paragraph (17) of subdivision (a) of Section 3352.
(g) A person who holds the power to revoke a trust, with respect to shares of a private corporation held in trust or general partnership or limited liability company interests held in trust. To the extent that this person is deemed to be an employee described in subdivision (c) or (f), as applicable, the person may also elect to be excluded from coverage as described in subdivision (c) or (f), as applicable, if that person otherwise meets the criteria for exclusion, as described in Section 3352.
(h) A person committed to a state hospital facility under the State Department of State Hospitals, as defined in Section 4100 of the Welfare and Institutions Code, while engaged in and assigned work in a vocation rehabilitation program, including a sheltered workshop.  It is the intent of the Legislature to amend the law to address workers’ compensation and the holding in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903. 

SEC. 5.

 Section 621.5 of the Unemployment Insurance Code is amended to read:

621.5.
 (a) “Employee” also means any individual who is an employee, pursuant to Section 2750.5 of the Labor Code, of a person who holds a valid state contractor’s license pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.
(b)   When subdivision (a) does not apply, “employee” shall  also mean means  any individual who is an employee, pursuant to Section 2750.5 of the Labor Code, of a person who is required to obtain a valid state contractor’s license pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.
(c) “Employee” also means any individual who is an employee pursuant to Section 2750.3 of the Labor Code.
SEC. 6.
 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.