March 26, 2019
By: Thomas M. O’Connell
Assembly Bill AB5 has been amended to include carve outs for certain industries from the Dynamex “ABC” test and reversion back to the Borello test for those industries.
On March 26, 2019, AB5 was amended to explicitly include the “ABC” test and preclude the application of the “ABC” test to certain industries. Those industries include the following:
(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), and 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.
For those occupations, the independent contractor analysis would be done pursuant to S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.
As a reminder, the Borello test is a multiple factor test that more deeply analyzes the manner in which the putative employer exercises control over the manner and means of accomplishing the desired result of the putative employee. Many parts of the Borello test have been echoed in the joint employer analysis in numerous jurisdictions and commonly requires direct or actual control as opposed to reserved or indirect control. Said differently, a return to Borello would be better for most employers and than Dynamex.
With that in mind, it is likely that the lobbying related to AB5 will take two concurrent paths. On the one hand, for those industries that are either inadvertently included in this legislation or otherwise have the political leverage, their lobbyists are likely to try to secure a carve out. On the other hand, for those industries that are directly targeted by this legislation or otherwise do not have the political leverage to get a carve out, their goals must be to either defeat this bill in the legislature or through referendum.
Unfortunately, franchising at large and the gig economy employers like Uber are likely in the latter category. To be clear, it is likely that certain types of franchises–such as those in the healthcare industry, real estate, brokers, etc.–will achieve carve outs, but it is unlikely that franchising at large will secure a carve out. However, even without this bill, all franchisors, franchisees, and other employers should take the precautions necessary to ensure that the “ABC” test that the California Supreme Court articulated in Dynamex does not put them at risk.
This article was originally published on the California Franchise Network.