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Existing law, as established in the Dynamex case 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 benefit 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 individual who under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.

In AB5, the Legislature codifies the decision in the Dynamex case and clarify its application. The bill would provide that for purposes of the provisions of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that:

ABC TEST

A. The person is free from the control and direction of the hiring entity in connection with the performance of the work

B. The person performs work that is outside the usual course of the hiring entity’s business

C. The person is customarily engaged in an independently established trade, occupation or business

If a court rules that the 3-part test cannot be applied, then the determination of employee or independent contractor status will be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello). The bill would exempt specified occupations from the application of Dynamex as codified in the codes, and would instead provide that these occupations are governed by the Borello Test.

What is the Borello Test?

Exempt occupations in AB5 include, among others, licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber 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.