An Endangered Species by Newly Enacted “AB 5”

Until April 2018, the 11-factor balancing test in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (California Supreme Court) had long applied to classifying workers as employees or independent contractors.

That court then dramatically changed the rules in Dynamex Operations West, Inc. v. Superior Court. See, Independent Contractor Status in California Now Falls Under Radically Different Rules (June 2018). Now, a hiring company could only treat a worker as independent if the individual met three criteria:

• the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
• the worker performs work that is outside the usual course of the hiring entity’s business; and
• the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Confusion followed since Dynamex’s “ABC” definition only applied to the reach of state minimum wage, overtime, meal and rest break and other related rules, with the 11 Borello factors remaining for contractor/employee distinction on all other issues, for example workers’ compensation protections and unemployment benefits.

Assembly Bill (AB) 5 — most of which is scheduled to go into effect January 1, 2020 — is state government’s attempt to more uniformly apply the Dynamex “ABC” test, including to work comp and unemployment. Yet, true to the legislative process, the new law is full of available exemptions for certain occupations and industries:

• certain medical professionals, licensed lawyers, accountants, enrolled agents, architects, engineers, and private investigators;
• insurance licensees, securities broker-dealers and investment advisers;
• direct salespeople, marketers, human resource administrators, travel agents, payment processing agents, and grant writers, real estate licensees, and repossession agencies;
• graphic designers, fine artists, certain photographers or photojournalists, and certain freelance writers, editors, or newspaper cartoonists;
• licensed cosmetologists, barbers, estheticians, and manicurists; and
• licensed construction contractors that have licensed subcontractors.

Another possible exemption is a business hiring another business to provide work directly to the hiring business and not to its customers. In suitable circumstances, this may apply to the software industry for example.

Those covered by these exemptions still must meet the Borello factors to claim legitimate independent contractor status.

While many commentators are pointing to the potentially devastating effect of AB 5 on the so-called “gig economy,” the law will also seriously affect many other industries, trucking prominent among them.

Already at work helping companies with implementation, we will be supplementing this overview with additional articles on specific industries or features of the new law.

See also:

• Making Dynamex Retroactive (May, 2019)
• Independent Contractor or Employee? (April, 2019)
• Independent Contractor Status? It Depends (November, 2018)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin

October 4, 2019

An Endangered Species by

The Industries and Professions Not Subject to California’s New Independent Contractor Restrictions

Effective January 1, 2020, Assembly Bill (AB) 5 will dramatically extend the ultra-strict Dynamex “ABC” test for independent contractor classification. See, California’s Independent Contractors, Endangered Species? (October, 2019).

However, a portion of AB-5, to become Labor Code section 2750.3(b), exempts several specific industries/licensed professionals from the ABC test. The Borello multi-factor balancing test will continue to apply to these. See, Independent Contractor or Employee? (April, 2019).

• Accountants
• Architects
• Commercial fishermen working on an American vessel (as further defined in AB-5)
• Dentists
• Direct sales salespersons (as described in Unemployment Insurance Code section 650)
• Engineers
• Insurance agents, investment advisors and other persons or organizations licensed by the California Department of Insurance
• Lawyers
• Physicians
• Podiatrists
• Private investigators
• Psychologists
• Securities broker-dealers or investment advisors or their agents and representatives
• Surgeons
• Veterinarians

This list is the pure product of the political process. Those professions and avocations not exempt from AB-5’s incoming “clamp down” on independent contractor classification include acupuncturists, chiropractors, “enrolled agents” (federally authorized tax advisors), hygienists, optometrists, paralegals, nutritionists, and physical therapists.

To validly classify someone from one of the excluded occupations (accountant, architect, etc.) as independent, the hirer must show, case-by-case, that the greater weight of Borello factors applies, including: ● no right to control the manner and means of the work; ● can only discharge the worker for cause; ● the worker’s engagement in a distinct occupation or business; ● no supervision over work performance; ● the worker must be skilled; ● the worker supplies the instruments, tools, and the place of work and invests in the job’s equipment, materials or helpers; ● limit on length of time for which the services are to be performed; ● method of payment is by the job, not hourly; ● the work is not connected with the hirer’s regular business; ● parties both agree to independent contractor status; and ● the worker can experience profit or loss.

Stay tuned for more articles covering AB-5’s further exceptions/carve-outs to the ABC test.

For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth

October 9, 2019

The Industries and Professions Not Subject to California’s New Independent Contractor Restrictions

Building Subcontractors’ Exemption From the Strict New Limits on Who is “Independent”

When new Labor Code section 2750.3(f) goes into effect on January 1, 2020 as part of Assembly Bill (AB) 5, it will be possible for builders to exempt their sub relationships from the new highly restrictive Dynamex ABC standard for independent contractor classification. See, Dodging the Bullet (October 2019).

This special exception stems from Sacramento’s political process. To take advantage and be judged by the less stringent Borello balancing factors, the subcontractor will need to meet all these requirements:

• A written contract;
• A contractor’s license issued by the Contractors State License Board, unless it is a trucking subcontractor that meets a separate list of requirements;
• Any required business licenses and tax registrations;
• Its own business location;
• Authorization to hire other people to perform the services or assist in doing so;
• Insurance, indemnities, warranties and/or bonds that make the subcontractor financially liable for errors and omissions in its services; and
• Being engaged in an established business that performs the same kind of work as that under the subcontract.

These seven criteria would in any event qualify a subcontractor as independent under the “C” factor of the Dynamex ABC test, now section 2750.3: “The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

The real benefit of the exception is that it legally moves the relationship beyond Dynamex factor “B,” under which the sub would otherwise be the contractor’s employee as engaged in the “usual course of [that contractor’s] business.”

Thus, a general contractor would be well advised to prevent future potential legal and financial harm by formally employing any subcontractor who does not fit all seven points above.

Particularly in this high-stakes arena, consultation with competent legal counsel is good practice.

See also:

• Bullet Dodging Part 3, California’s “Professional Services” Exemption To Strict Independent Contractor Definition Licensed Beauticians Among the Eligible (October, 2019)
• Bullet Dodging Part 2, California’s “Business-to-Business” Exception To Strict Independent Contractor Definition (October, 2019)
• California’s Independent Contractors (October 2019)
• Independent Contractor or Employee? (April, 2019)
• Independent Contractor Status? It Depends (November, 2018)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin

October 31, 2019

Building Subcontractors’ Exemption From the Strict New Limits

The Referral Agency Exception To California’s Strict Independent Contractor Definition

When new Labor Code section 2750.3(g) goes into effect on January 1, 2020 as part of Assembly Bill (AB) 5, certain types of referral agencies may be able to avoid classifying associated service providers as employees under the uber-strict Dynamex ABC standards. See, California’s Independent Contractors (October 2019).

Only referral agencies that deal in specified industries are eligible: those connecting clients or customers with service providers dealing in graphic and/or web design, photography, tutoring, event planning, minor home repair, furniture assembly, picture hanging, moving, errands, home cleaning, animal services, dog walking or grooming, pool cleaning or yard cleanup.

Such associated service providers must be either a sole proprietorship, corporation, partnership, limited liability company or limited liability partnership.

Additionally – and keeping with the previously prevailing “Borello” multi-factor balancing test for contractor vs. employee classification — the service provider must:

• Be free from the referral agency’s direction and control;
• Obtain and maintain any required state contractor’s license, business license and/or business tax registration;
• Deliver services to the client/customer under the service provider’s name, not the name of the referral agency;
• Provide its own tools and supplies;
• Customarily engage in an independently established business of the same nature as the work performed;
• Maintain its own clientele without any restrictions and remain free to seek work elsewhere including through a competing referral agency;
• Set its own hours and terms of work and freely accept or reject clients and contracts without repercussion; and
• Set its own rates without deduction by the referral agency.

See also:

• Bullet Dodging Part 4: Building Subcontractors’ Exemption From the Strict New Limits on Who is “Independent” (October, 2019)
• Bullet Dodging Part 3: California’s “Business-to-Business” Exception To Strict Independent Contractor Definition (October, 2019)
• Bullet Dodging Part 2: California’s “Professional Services” Exemption To Strict Independent Contractor Definition Licensed Beauticians Among the Eligible (October, 2019)
• Dodging the Bullet: The Industries and Professions Not Subject to California’s New Independent Contractor Restrictions (October, 2019)
• Independent Contractor or Employee? (April, 2019)
• Independent Contractor Status? It Depends (November, 2018)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth

November 8, 2019

Barring Successful Court Challenge, Federal Overtime Exemption Will Require Higher Salaries January 1, 2020

In 2016, the U.S. Department of Labor (DOL) issued a “Final Rule” more than doubling the minimum salary amounts for certain workers – administrative, executive, and professional, employees, as well as “highly compensated employees” (HCE) to qualify for overtime exemption under the Fair Labor Standards Act (FLSA).

That rule proved not to be final after all. A judge enjoined its enforcement. The challenge to that 2016 version remained on appeal but inactive until the Trump DOL recently rescinded and replaced it with a new Final Rule, effective January 1, 2020.

This federal regulation directs certain increases in the minimum compensation amounts for exempt workers but does not change the principal job duties required to qualify. See DOL Fact Sheet #17A.

For instance, the new regulation raises the minimum qualifying salary amount for overtime exempt professional, executive, and administrative employees from $455/week; $1,971.67/month; $23,660/year to $684/week; $2,964/month; $35,568/year.

Eligibility for the FLSA’s HCE exemption will require a minimum $107,432/year salary, up from the current $100,000.

For exempt motion picture industry workers, the DOL is raising the qualifying “base rate” for a full week to $1,043/week, or a proportionate amount of that minimum equal to one sixth of the base rate for each day worked in a shorter week.

The new regulation also permits employers to count ten percent of an exempt employee’s non-discretionary bonuses and other incentive compensation payments in the calculation of the applicable minimum salary amount.

No Immediate Effect on California’s Exempt-from-Overtime Criteria: This state’s salary minimums for “white collar” professional, executive, and administrative exempt employees already exceed these incoming federal standards. California’s salary threshold is the double the statewide hourly minimum wage for a 40-hour week. Thus, for 2020, with that minimum wage going to $13/hour for companies with 26 or more employees and $12.00/hour for businesses with 25 or fewer employees, minimum salaries to qualify for overtime exemptions will be $1,040/week; $4,506.67/month; $54,080/year for the 26-plus employers and $960/week; $4,160/month; $49,920/year for businesses with smaller payrolls.

California employers with exempt out-of-state employees will need to consider whether the new Final Rule affects what they are paying those employees.

See also:

• Find Out What’s New In 2020! CALIFORNIA EMPLOYERS: Annual Employment Law Seminar Covers the New and Enduring Workplace Essentials (November, 2019)
• Mid-Year Minimum Wage Rate Increases (June, 2019)

If you need assistance with working any of the issues raised by these new regulations, our attorneys, Tim Bowles, Cindy Bamforth or Helena Kobrin, can help.

Helena Kobrin

November 27, 2019

Barring Successful Court Challenge, Federal Overtime Exemption Will Require Higher Salaries January 1, 2020

Real Estate Agent Exemptions From Stringent Limits on Independent Contractor Status

New Labor Code 2750.3(d), effective January 1, 2020 as part of Assembly Bill (AB) 5, exempts real estate licensees, regulated under the Business & Professions Code (B&P), from the strict Dynamex ABC test for independent contractor classification. See, Dodging the Bullet (October 2019).

Labor Code 2750.3(d) defers to B&P 10032(b), which permits real estate brokers and agents to structure their relationships either as employer-employee, respectively, or as hirer-independent contractor. However, that provision of 10032(b) notably does not apply where broker and agent have no written contract between them. For such “non-10032(b)” real estate broker-agent associations:

• Unemployment Insurance Code 650 will render such agents ineligible for unemployment, as “real estate salesperson” is excluded from the definition of “employment”;
• brokers must provide workers compensation coverage for such agents; and
• for all other labor issues (e.g., obligations to pay minimum wage, meals/breaks, overtime), B&P 10015.1 directs a modified factor-balancing Borello test to determine employee or contractor status. Unique to the real estate field, brokers are obligated by statute to supervise agents under them. However, the statute also provides that such supervision does not count to nullify the agent’s otherwise possible independent contractor status.

Moral: As the complexity and uncertainty of California’s employee/independent contractor law increase, so too the wisdom of utilizing competent legal counsel to help navigate the rocks and shoals of such classifications.

See also:

• Bullet Dodging Part 5, The Referral Agency Exception To California’s Strict Independent Contractor Definition (November, 2019)
• Bullet Dodging Part 4, Building Subcontractors’ Exemption From the Strict New Limits on Who is “Independent” (October, 2019)
• Bullet Dodging Part 3, California’s “Professional Services” Exemption To Strict Independent Contractor Definition Licensed Beauticians Among the Eligible (October, 2019)
• Bullet Dodging Part 2, California’s “Business-to-Business” Exception To Strict Independent Contractor Definition (October, 2019)
• California’s Independent Contractors (October 2019)
• Independent Contractor or Employee? (April, 2019)
• Independent Contractor Status? It Depends (November, 2018)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin

November 22, 2019

Real Estate Agent Exemptions From Stringent Limits

California Labor Code section 515.6 exempts certain licensed physicians and surgeons from overtime compensation if they receive set minimum hourly compensation. Effective January 1, 2020, the California Department of Industrial Relations is increasing the minimum from $82.72 to $84.79 per hour, effective January 1, 2020.

To avoid California’s requirements to pay overtime premium rates after eight hours worked in a day or 40 in a week, employers will need to pay eligible physicians or surgeons that minimum hourly rate, keeping accurate track of hours worked.

Under Labor Code section 515.6, a doctor is exempt-from-overtime only if he or she is a licensed physician or surgeon “primarily engaged” (more than 50% of the time) in duties that require that licensure. California Business & Professions Code section 2052 specifies such duties, requiring a medical license for anyone who “diagnoses, treats, operates for, or prescribes for any ailment, blemish, deformity, disease, disfigurement, disorder, injury, or other physical or mental condition of any person.”

Employers relying on this exemption will of course need to implement this rate change by the January 1 deadline.

Physicians and surgeons paid on a lump sum salary (whether weekly or otherwise) will not qualify for this exemption but may otherwise be excused under the administrative, executive, or professional overtime exemptions.

For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth

December 5, 2019

Arbitration is a form of private dispute resolution that takes the place of a lawsuit and court trial. Arbitration has many business-related advantages, including a more efficient, less-public process than the often-prolonged procedures of the court. Thus, employers often favor this alternative.

California Labor Code section 432.6, effective January 1, 2020 as part of Assembly Bill (AB) 51, restricts the scope and terms of workplace arbitration agreements. In-state employers will no longer be allowed to require job applicants or employees to enter into mandatory arbitration agreements for discrimination, harassment or retaliation claims under the California Fair Employment and Housing Act (FEHA) and/or claims under the California Labor Code. As this new law has no retroactive application, any valid arbitration agreement under pre-2020 California law signed by December 31, 2019 will remain valid after that date.

Any arbitration agreement entered on or after January 1, 2020 should contain language clearly confirming the worker is voluntarily choosing to arbitrate disputes arising from or relating to the employment relationship. From that date, California employers will no longer be able to condition most workplace arbitration agreements as take-it-or-leave-it even if the employee can opt out of the agreement later. Applicants and employees also cannot be threatened, retaliated or discriminated against for refusing to consent to an otherwise compliant agreement.

Subsection 432.6(f) presents an exception, currently of uncertain scope. Any written arbitration agreement enforceable by the Federal Arbitration Act (FAA) is not invalidated by this new law. It is left to the courts whether the above ban on mandatory agreements conflicts with the FAA.

In the meantime, as failure to comply with the new law exposes employers to damages claims and possible criminal charges, it is risky to presume this FAA exemption will ultimately prevail. The better practice for affected employers is to ensure compliance with section 432.6 upon the start of the new year.

See also:

• Find Out What’s New in 2020: Scientia Est Potentia (Knowledge is Power) (December, 2019)
• New Year’s Resolution: Get Smart(er) Order Our 2020 Updated Model Employee Handbook and Hire-to-Fire Forms (December, 2019)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth

December 18, 2019

Longer Three-Year Deadline For Initiating Discrimination Claims

Targets of workplace discrimination, harassment and retaliation prohibited by California’s Fair Employment and Housing Act (FEHA) now have three years (up from the previous one year) to file a claim with California’s Department of Fair Employment and Housing (DFEH) against the subject employer.

A person claiming such wrongful conduct must file that DFEH complaint as well as request and receive a right-to-sue letter from that agency before initiating a FEHA lawsuit.

Responding to #MeToo concerns that recipients of such abuse need more time to process, the legislature’s Assembly Bill (AB) 9, effective January 1, 2020, amends the FEHA to permit this longer three-year period. Extensions from 90 days to one year are available for special circumstances such as late discovery of the facts. Some other types of FEHA claims, e.g. for housing discrimination, still have a one-year deadline. Government Code section 12960(e).

A claimant has one year from the date of his/her DFEH right-to-sue letter to file the FEHA court suit.

Employers may now have to respond to court-filed allegations – and to muster documents and witnesses – for incidents four-years or more old. Thus, best personnel practices might well include:

• having a clear-cut policy for reporting and investigating allegations of discrimination, harassment, and retaliation;
• documenting clearly and maintaining thorough records of all such investigations; and
• maintaining contact information for departing employees who may become witnesses over any significant workplace upset or dispute.

See also:

• Find out What’s New in 2020- Get Going by Knowing (January, 2020)
• Prevent No-Consent Torment (January, 2020)
• Boss Sauced; Senior Managers Must Prevent Supervisor Harassment, Discrimination(Sept 2019)
• United States of Procrastination, Deadline Now Jan. 1, 2021 for Sexual Harassment Prevention Training to Rank-and-File Employees(Sept 2019)

For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin, Tim Bowles

January 10, 2020

Longer Three-Year Deadline For Initiating Discrimination Claims