Executive Summary
The California Senate has amended AB5 rolling back some previous amendments related to certain industries such as hairstyling and adding in new industries that would be carved out from the Dynamex “ABC” test. No direct franchising at large amendment has been included yet.
Analysis
On July 11, 2019, the California Senate Committee on Labor, Public Employment and Retirement amended AB5. While there are numerous technical amendments, a paragraph that encapsulates where the bill now stands is as follows:
This bill would state the intent of the Legislature to codify the decision in the Dynamex case and clarify its application. The bill would provide that the factors of the “ABC” test be applied in order to determine the status of a worker as an employee or independent contractor for all provisions of the Labor Code and the Unemployment Insurance Code, except if a statutory exemption from employment status or from a particular obligation related to employment or where a statutory grant of employment status or a particular right related to employment applies. The bill would exempt specified professions from these provisions and instead provide that the employment relationship test for those professions shall be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 if certain requirements are met. These exempt professions would include, among others, licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales, salespersons, real estate licensees, workers providing hairstyling or barbering services, electrologists, estheticians, workers providing natural hair braiding, licensed repossession agencies who meet requirements described below, and those performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.
Notably, for those industries that are being carved out of the “ABC” Test, amendments continue to change what factors will be considered to determine if employees are independent contractors. For example, hairstyling and barberists now have the following elements (with italics showing new language):
(6) A worker providing hairstyling or barbering services who has a booth rental permit and services, an electrologist, an esthetician, or worker providing natural hair braiding, who is free from direction or control both under the contract for the performance of the work and in fact. For purposes of this subparagraph, “free from direction or control” includes, but is not limited to, the worker meets all of the following criteria:
(A) Sets their own rates for services performed. performed, provided the rate is equal to or greater than two times the minimum wages for hours worked and is paid directly by their clients.
(B) Sets their own hours of work. work and has sole discretion to decide which clients from who they will provide services.
(C) Has their own book of business or clients. and schedules their own appointments.
(D) Uses their own funds to purchase requisite supplies used in connection with providing services.
(E) Maintains their own business license in connection with the services offered to clients.
Looking Forward
The lobbying for individual industries to carve themselves out of the Dynamex “ABC” Test is continuing in full force with numerous industries hoping for exemptions. While this round included various industries like repossession agencies and estheticians, a direct franchising carve out did not occur and remains unlikely. Given the speed at which this bill is progressing and the changes made to date, franchisors and franchisees should continue to treat the Dynamex “ABC” Test as what potential plaintiff’s will argue is applicable to your business until either the Courts or the legislature makes it clear that the “ABC” Test does not apply.
This article was originally published on the California Franchise Network.
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Thomas O’Connell – Tom O’Connell is a Shareholder at Buchalter APC, where he serves as Chair of the firm’s Franchise Law Practice and Chair of Litigation for the firm’s San Diego office.
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