What happens when someone is injured at work but has been designated as an “independent contractor” by their employer? In these situations, the employer will deny liability because it is claimed that worker was not an employee, but rather an independent contractor. This tactic is frequently used by employers to evade responsibility for work related injuries.
On September 19, 2019 Assembly Bill 5 was signed into law with an effective date of January 1, 2020. The effect of this new law is to extend Workers Compensation rights to workers who had previously been classified as “Independent Contractors”, thereby preventing them from asserting claims for work related injuries against their hiring employers.
Legal Background
The general rule is that any person rendering a service for another, other than an independent contractor, or unless expressly excluded herein, is presumed to be an employee. California Labor Code §3357.
When an injured worker comes forward with evidence of having provided services for an employer, the burden then shifts to the employer to establish that an employee claiming injury was actually an independent contractor. California Labor Code §5705(a). A dispute then arises when an injured worker claims Workers Compensation benefits but is then denied when the employer claims they were an “independent contractor”.
History
The longstanding rule in determining whether an employer possess sufficient control over the details of the work such that the worker will be considered an employee rather than an independent contractor, the courts follow the “right of control” test, under which it is the right of control, not the actual exercise of control, that may indicate the status of employment. S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341; 54 CCC 80.
These factors included:
1. The right of the employer to discharge the worker.
2. The length of time in which the services are performed.
3. The method of payment, and
4. Whether the parties believe they are creating the relationship of employer-employee.
These factors were further defined by case law in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. The Borello test factors included:
1. Whether the person performing the services is engaged in a distinct occupation.
2. Whether the kind of work done is performed under the direction of the principal or by a specialist without supervision.
3. The skills required in the particular occupation.
4. Whether the principal or the worker supplies the instrumentalities, the tools, and the place or work for the person performing the services.
5. The length of time for which the services are to be performed.
6. The method of payment whether by time of the job.
7. Whether the work is part of the principal’s regular business.
8. Whether the parties believe they have created an employment relationship.
The Dynamex Decision
In 2018, the California Supreme Court addressed the independent contractor issue in the case of Dynamex Operations West, Inc. In this case the California Supreme Court, in rejecting the Borello analysis, established an “ABC test”.
Under the ABC test, a worker will be deemed an employee for wage order purposes, unless the presumed employer proves:
(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work.
(B) The worker performs work that is outside the usual course of the hiring entity’s business; and
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Each of these requirements need to be met in order for the presumption that a worker is an employee to be rebutted and to be classified as an independent contractor.
Scope of the Ruling
The ruling in Dynamex applied to a wage and hour dispute, not to a Workers Compensation claim. Accordingly, Dynamex was not applicable in claims for Workers Compensation benefits, at this time.
California Assembly Bill 5
In an effort to extend these rights Assembly Bill 5, was introduced to apply the Dynamex “ABC” test to determine whether a worker was an employee or independent contractor for all provisions of the Labor Code including Workers Compensation. This bill was codified as California Labor Code §2750.3 and made effective as of January 1, 2020. The intent of this law was to provide protect to workers that would otherwise improperly be designated as independent contractors by their employers by mandating they be provided with benefits including health insurance and Workers’ Compensation benefits. . This law was aimed at “gig economy” workers, including Lyft and Uber drivers.
AB 5 contained a number of occupational exceptions. These include licensed insurance brokers, doctors, dentists, psychologists, attorneys, architects, engineers, private investigators, accountants, securities brokers, and veterinarians. Employee status for workers in these occupations will be governed by the Borello criteria described above.
Also exempted are freelance photographers and writers submitting no more than 35 submissions per year to a given employer. Stylists and barbers are also exempted provided they set their own schedules, rates, have their own license, and have their own client base. While the foregoing is not exhaustive of the exceptions it does serve to highlight the more prominent exempted occupations.
The unintended result of AB5 was a loss of work from potential employers who did not want to comply with the expense associated with classifying former independent contractors as employees. Unfortunately these have included medical workers, including respiratory therapists who are now in high demand due to the Coronavirus outbreak. Other affected occupations include delivery drivers, court reporters and interpreters.
NEW
Assembly Bill 2257
On September 4, 2020 Assembly Bill 2257 was signed into law. This bill was created as “clean up” to Assembly Bill 5. The effect of the new legislation was to add a significant number of exemptions to the “A,B,C” test as established by AB 5. It is also modified the exemption for photographers and journalists.
Added Exemptions
A number of professions and business situations have been made exempt from the “A,B,C” test. This means that in order to establish an “Independent Contractor” relationship for the purposes of Workers Compensation, an analysis under Borello (discussed above) will have to be used.
The new professions now exempt from the AB 5 “A,B,C” test include:
Recording Industry- Now exempt from AB5 are musicians, musical groups, recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers and mixers, musicians, vocalists, photographers, independent radio promoters and certain types of publicists.
Business-To-Business Exemption- AB 2257 maintains the exemption for “bona fide business-to-business contracting relationships” where a contractor “acting as a sole proprietor, or a business entity formed as a partnership, limited liability company, limited liability partnership or corporation contracts to provide services to another such business.” Obviously this would encompass a wide variety of businesses.
Other Professions- Underwriting inspections and other services for the insurance industry, a manufactured housing salesperson, subject to certain obligations, people engaged by an international exchange visitor program, as specified, consulting services, animal services, and competition judges with specialized skills. Other exemptions include interpreting services, licensed landscape architects, specialized performers teaching master classes, registered professional foresters, real estate appraisers and home inspectors, and feedback aggregators.
The foregoing is not exhaustive of the list of exemptions but serves to highlight the significant expansion of professions and employment situations exempt from AB 5. A full text of AB 2257 can be found here.
UBER and LYFT Drivers - The provisions of the exemptions found in AB 2257 did NOT include drivers for app-based transportation and delivery companies. These drivers were the subject of Proposition 22 on the November 2020 ballot, which passed. This classified app-based drivers as independent contractors unless the hiring company sets the driver’s hours, requires acceptance of specific ride or delivery requests, or restricts the driver from working for other companies.
PROPOSITION 22 UPDATE
On March 13, 2023, the California Court of Appeals for the most part upheld the legality of Proposition 22. Independent Contractors earning money from companies like Lyft, Uber, and Door Dash, and others can continue working as independent workers.
(The Court of Appeals held the provision relating to potential collective bargaining statutes amending Proposition 22 as unconstitutional as any amendments would have required 7/8 majority in State Assembly and Senate without voter approval. Any determination as to what is an “Amendment” rests solely with the judiciary, not with the legislature pursuant to the California Constitution. Art. III, §3)
In June 2023, the California Supreme Court agreed to hear a challenge to the ruling of the Court of Appeals. Accordingly, the status of Proposition 22 remains unsettled.
Advice to injured workers
Because of the issues involving employment relationships, it is important for workers claiming Workers Compensation benefits to be able to clearly describe the degree of control a hiring entity has over them, including the times and locations to be worked, as well the degree of direction given in the performance of their duties.
As with most areas of law, there are time limitations within which to bring a claim for Workers Compensation benefits. Unfortunately, many workers fall into the trap of thinking their employer “will take care of them”. Accordingly, steps should be immediately taken to protect your interests.
Uber and Lyft Drivers: Because of the uncertainty regarding the status of App based drivers as independent contractors drivers should carry their own injury and disability insurance policies, in additional to the auto policies as required by law.
