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