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

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Date Published: 07/11/2019 09:00 PM
AB5:v95#DOCUMENT

Amended  IN  Senate  July 11, 2019
Amended  IN  Assembly  May 24, 2019
Amended  IN  Assembly  May 01, 2019
Amended  IN  Assembly  March 26, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 5


Introduced by Assembly Member Gonzalez

December 03, 2018


An act to amend Section 7500.2 of the Business and Professions Code, to amend Section 3351 of, and to add Section 2750.3 to to, the Labor Code, and to amend Section 621.5 of the Unemployment Insurance Code, relating to employment, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


AB 5, as amended, Gonzalez. Worker status: employees and independent contractors.
Existing law, as established in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), creates a presumption that a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits arising under wage orders issued by the Industrial Welfare Commission. Existing law requires a 3-part test, commonly known as the “ABC” test, to establish that a worker is an independent contractor for those purposes.
Existing law, for purposes of unemployment insurance provisions, requires employers to make contributions with respect to unemployment insurance and disability insurance from the wages paid to their employees. Existing law defines “employee” for those purposes to include, among other individuals, any officer of a corporation, and any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. employee, or is an employee of a person who holds or is required to obtain a valid state contractor’s license.
This bill would state the intent of the Legislature to codify the decision in the Dynamex case and clarify its application. The bill would provide that the factors of the “ABC” test be applied in order to determine the status of a worker as an employee or independent contractor for all provisions of the Labor Code and the Unemployment Insurance Code, unless another definition or specification of “employee” is provided. except if a statutory exemption from employment status or from a particular obligation related to employment or where a statutory grant of employment status or a particular right related to employment applies. The bill would exempt specified professions from these provisions and instead provide that the employment relationship test for those professions shall be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 if certain requirements are met. These exempt professions would include, among others, licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, a direct sales salesperson, salespersons, real estate licensees, workers providing hairstyling or barbering services, electrologists, estheticians, workers providing natural hair braiding, licensed repossession agencies who meet requirements described below, and those performing work under a contract for professional services. The bill would require the State Board of Barbering and Cosmetology to promulgate regulations for the development of a booth rental permit and a reasonable biennial fee upon workers providing specified hairstyling or barbering services, by no later than July 1, 2021. services, with another business entity, or pursuant to a subcontract in the construction industry.
This bill would also expand the definition of employee, for purposes of unemployment insurance provisions, to include individuals who are defined as employees pursuant to the above-described provision of the Labor Code codifying the “ABC” test. Because this bill would expand increase the categories of individuals eligible to receive benefits from, and thus would result in additional moneys being deposited into, the Unemployment Fund, a continuously appropriated fund, the bill would make an appropriation. The bill would state that addition of the provision to the Labor Code 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.
Existing provisions of the Labor Code make it a crime for an employer to violate specified provisions of law with regard to an employee. The Unemployment Insurance Code also makes it a crime to violate specified provisions of law with regard to benefits and payments.
By expanding the definition of an employee for purposes of these provisions, the bill would expand the definition of a crime. crime, thereby imposing a state-mandated local program.
Existing law, the Collateral Recovery Act, provides for the licensure and regulation of repossession agencies by the Bureau of Security and Investigative Services. Existing law defines a repossession agency to include any person who engages in the business or accepts employment to locate or recover collateral. Existing law permits a licensed repossession agency to only transact business with another person or entity as an independent contractor.
This bill, to ensure that independent contractor status is met, would require the repossession agency to be both free from the control and direction of the hiring person or entity, as specified, and perform work that is outside the usual course of the hiring person or entity’s business.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: YES   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


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. 2.SEC. 3.

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

2750.3.
 (a) For purposes of the provisions of this code and the Unemployment Insurance Code, where another definition or specification for the term “employee” is not provided, 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, 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 Business and Professions Code Section 10032(b) Section 7500.2 of, or subdivision (b) of Section 10032 of, the Business and Professions Code, as set forth in paragraph 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 Business and Professions Code Section 10032(b). subdivision (b) of Section 10032 of the Business and Professions Code. If that section is not applicable applicable, then classification shall be governed as follows: (1) for purposes of unemployment insurance by Unemployment Insurance Code Section 650; Section 650 of the Unemployment Insurance Code; (2) for purposes of workers compensation by Section 3200 and following 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. S. G. Borello and Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341. The statutorily imposed duties of a responsible broker under Business and Professions Code Section 10015.1 of the Business and Professions Code are not factors under the Borello test.
(6) (A)A worker providing hairstyling or barbering services who has a booth rental permit and 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:

(i)

(A) Sets their own rates for services performed. 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.

(ii)

(B) Sets their own hours of work. work and has sole discretion to decide which clients from who they will provide services.

(iii)

(C) Has their own book of business or clients. 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.

(B)The State Board of Barbering and Cosmetology shall promulgate regulations no later than July 1, 2021, for the development of a booth renter permit and a reasonable biennial fee not to exceed fifty dollars ($50), which may be included as an addendum to the initial and biennial license renewal application. Booth renters shall post a notice of their booth renter permit for consumers to view. The board shall share the list and contact information of all booth renters with any state agency that requests the list, for purposes of assuring compliance with this section.

(C)The permit requirement set forth in subparagraph (B) shall not become operative until six months after the State Board of Barbering and Cosmetology finalizes regulations as required under this section in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). Until that date, the employment relationship between a hiring entity and a worker who meets all the criteria in paragraph (1) of subdivision (a), except for the permit requirement of subparagraph (B) of this paragraph, 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.

(D)For the purposes of this paragraph:

(i)“Hairstyling” is any combination of the following practices:

(I)Arranging, dressing, curling, waving, machineless permanent waving, permanent waving, cleansing, cutting, shampooing, relaxing, singeing, bleaching, tinting, coloring, straightening, dyeing, applying hair tonics to, beautifying, or otherwise treating by any means, the hair of any person.

(II)The provision of natural hair braiding services together with any of the services and procedures described in subclause (I).

(ii)“Barbering shall have the same meaning as defined in subdivision (a) of Section 7316 of the Business and Profession Code.

(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 Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, 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. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 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 either: 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.

(d)

(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)This section shall become operative on July 1, 2018.

(h)  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. 3.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.