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Independent Contractor Legislation Amended, Carves Physicians Out of Dynamex Test

Amendments apply the former Borello test instead of Dynamex to several occupations, including physicians

Last week, Assembly Bill (AB) 5 (Gonzalez, D-San Diego) was amended to exempt physicians and several other classifications from the onerous Dynamex test for determining independent contractor status. CHA was instrumental in moving this forward. 

As reported earlier, in April 2018 the California Supreme Court issued a significant decision on the test for determining whether an individual providing services is an employee or independent contractor for purposes of a wage and hour claim brought under one of California’s wage orders. In Dynamex Operations v. Superior Court, the California Supreme Court adopted an “ABC” test for determining whether an individual is an employee under the wage orders, making it significantly more difficult for California employers to show that an individual qualifies as independent contractor. Hospitals have been grappling with how to deal with this case, given the myriad independent contractor relationships that exist in health care. 

Recognizing the potentially adverse impact on hospitals and health systems, CHA immediately began working with a coalition of employers to advocate for a more realistic test. The recent amendments to AB 5 are a direct result of that activity. The coalition, led by CalChamber, continues to advocate for several additional amendments.

First, the coalition seeks a broader exemption that would apply the multi-factor test established in S. G. Borello & Sons, Inc. v Department of Industrial Relations to a larger population of professionals such as architects, engineers, lawyers, real estate agents, therapists, accountants, speech interpreters, court reporters, barbers, hair stylists, and others who have advanced degrees or are licensed by the state. 

Next, the coalition seeks a broader exemption from Dynamex for individuals who, like direct sellers, prefer to control their own schedule. This could include consultants, videographers, caterers, freelance writers, photographers, musicians, graphic designers, and many others who control when and for whom they work, and who should be able to maintain their status as independent contractors. 

The coalition is also advocating for an exemption for business to business contracts.  Namely, any sole proprietor, partnership, LLC, LLP, or corporation should be able to contract with another lawful business to provide services, despite whether the services provided are within the “usual course of business.” Additionally, the coalition seeks a provision that allows for use of independent contractors to fulfill a demand for a short-term project. Finally, the coalition is seeking clarification that the Dynamex decision is not retroactive.

CHA remains an active member of the coalition. While it is difficult to predict the final language of AB 5 or whether it will be signed by the Governor, the recent amendments are encouraging. Hospitals and health systems should continue to monitor developments on the legislative efforts.