Have a PEO?

    Re-Write California Employment

    Bill Signed and Ready to Rewrite California Employment

    Law in Regard to Classification of Workers

    After months of debate and negotiations, the California State Legislature passed the controversial AB 5 on Wednesday, September 11, 2019, bringing it one step closer to being law. And then, on Wednesday, September 18, 2019, California Governor Gavin Newsom signed the bill into law  (https://www.gov.ca.gov/2019/09/18/governor-newsom-signs- legislation-9-18-19/). The new law is expected to impact and clarify the use of independent contractors throughout the state, and it will go into effect on January 1, 2020.

    Contrary to much of the reporting on the bill, AB 5 does not create any new independent contractor  test  or  mandate  that  any specific  company or  industry convert  workers from contractors to employees. Specifically, AB 5 codifies the existing “ABC Test” that was already set forth by the California Supreme Court last year in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903. The Court had adopted the “ABC Test” for determining whether an individual is an employee or independent contractor under the Industrial Welfare Commission (IWC) Wage Orders, abandoning the multi-factor test established in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). The Borello Test, as first set forth in S. G. Borello & Sons, c. v. Department of Industrial Relations (1989) 48 Cal.3d 341, looks to multiple factors to answer a principle question of whether the person receiving a service has the right to “control the manner and means” of completing that service. Under AB 5, the ABC Test will uniformly govern the independent contractor/employee determination under the Labor Code, the Unemployment surance Code, and the Wage Orders for most industries.

    What is the ABC Test?

    AB5 sets forth the so-called “ABC test,” simplifying the resolution of disputes about whether a worker is an independent contractor or employee. The test has three criteria that a worker has to meet in order to be classified as an “independent contractor” are as follows:

    (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) That the person is customarily engaged in an independently established trade, occupation,or business of the same nature as that involved in the work performed.

    Part B of the test is particularly problematic for a number of industries, especially those with established business models reliant upon the use of contractors.

    AB 5, however, does not apply the ABC Test across the board. The bill specifically exempts a number of occupations that will continue to be analyzed under the Borello Test. There are several classifications of exemptions that carry certain conditions. The bill will likely cause many industries to reclassify workers by allowing the state to enforce a stricter standard for freelancers. Here are some major ones:

    Rideshare & delivery services

    • Uber, Lyft, DoorDash, Postmates
    • Truck drivers
    • Heavy duty trucks, Amazon delivery trucks, some tow truck companies
    • Janitors & housekeepers
    • Commercial cleaning services
    • Health aides
    • Nursing homes, assisted living facilities
    • Newspaper carriers
    • The author agreed to delay implementation by one year in a concession to newspaper publishers.
    • Unlicensed manicurists
    • Licensed manicurists will get a two-year exemption.
    • Land surveyors, landscape architects, geologists
    • Campaign workers
    • Language interpreters
    •  Strippers
    • Rabbis

    The bill exempts many professional workers and a lot of those with licenses including:


    • Physicians, surgeons, dentists, podiatrists, veterinarians 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

    Some licensed professionals

    • Lawyers, architects, engineers, private investigator, accountant (an individual who holds an active license from the State of California)
    • Financial services
    • Insurance brokers, securities broker-dealers, investment advisors.
    • Real estate agents

    Direct sales

    • Provided the salesperson’s compensation is based on actual sales rather than wholesale purchases or referrals.

    Commercial fishermen

    • Exempt until 2023, except from unemployment insurance

    Builders & contractors

    • Construction firms that build major infrastructure projects and big buildings.

    Professional services

    • Marketing, human resources administrator, travel agents, graphic designers, grant writers, fine artist. 

    Freelance writers, photographers

    • Provided the worker contributes no more than 35 submissions to an outlet in a year.

    Hair stylists, barbers

    • Defined as a licensed barber or cosmetologist provided that person sets their own rates and schedule.

    Estheticians, electrologists, manicurists

    • Provided they are licensed and that 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


    • Provided they teach their own curriculum. Does not apply to public school tutors.

    AAA-affiliated tow truck drivers

    • Received a carvout

    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.

    Among the other health professionals not exempt under AB 5: occupational therapist, speech therapist, optometrist, nurse practitioner, physician assistant, radiation therapist, licensed professional clinical counselor, marriage and family therapist, licensed clinical social workers, respiratory therapists, audiology.

    Further, those who will soon be categorized as employees will be entitled to protection under state civil rights laws, including those barring discrimination, harassment, and retaliation. In shifting to employee status, companies would have to offer basic worker protections such as guaranteed minimum wage, overtime pay, contributions to Social Security and Medicare, unemployment and disability insurance as well as workers’ compensation, sick leave, and family leave. Workers could also get reimbursed for mileage and maintenance of their vehicles. Misclassification of such workers can result in significant legal exposure when it comes to wage and hour liability, benefits coverage, workers’ compensation laws, unemployment compensation,  and a  whole host of other legal issues.  This new law represents a shift for California independent contractor law and businesses. Those doing business in the state are beginning to work with their California employment attorneys to implement a compliance strategy. Newsom said in his signing statement that he is prepared for more negotiations with labor and business. In the coming months, expect to see much more regarding this bill.

    Compare PEOs hassle-free here and we will help you figure out which is the best fit for you and your company. With all these laws make sure you are always HR compliant.

    Detailed analysis of bill:

    https://www.littler.com/publication-press/publication/ab-5-update-california-legislature- passes-final- bill-september-11-2019

    Bill text:


    Schedule a time with your PEO-OLOGIST to talk more about these changes.

    Leave a Reply

    Keep Me Updated

      Yes, i agree to subscribe emails.

      We donate $100 to Einstein Hospital Healthcare Worker Fund for every subscriber. We are proud to have donated over $25,000 so far.