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