Shaun Gailey

I've been writing worker's compensation policies for four years and I’ve seen the best and worst-case scenarios when it comes to workers compensation and small to medium businesses. Within the last few years, the state of California has continued to modify the rules regarding worker's compensation and I’m going to clear some of them up for you and give you a link to an FAQ page from the labor department regarding Assembly Bill 5 aka AB5. AB5 was signed into law in September 2019 and it deals specifically with how businesses are to handle independent contractors known as 1099 contractors.
The state came up with the ABC test which can help a business determine if the worker can be considered a 1099 contractor and will not have to be covered under their workers' compensation policy.
Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
2. The worker performs work that is outside the usual course of the hiring entity’s business; and
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Below is a summary of the California Supreme Court’s explanation of how to apply the ABC test.
Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?
• The hiring entity must establish that the worker is free of such control to satisfy part A of the ABC test. (Dynamex, 4 Cal.5th at 958.)
• A worker who is subject, either as a matter of contractual right or in actual practice, to the type and degree of control a business typically exercises over employees would be considered an employee. (Id.)
• Depending on the nature of the work and overall arrangement between the parties, a business need not control the precise manner or details of the work to be found to have maintained the necessary control that an employer ordinarily possesses over its employees. (Id.)
PART B: Does the worker perform work that is outside the usual course of the hiring entity’s business?
• The hiring entity must establish that the worker performs work that is outside the usual course of its business to satisfy part B of the ABC test. (Dynamex, 4 Cal.5th at 959.)
• Contracted workers who provide services in a role comparable to that of an existing employee will likely be viewed as working in the usual course of the hiring entity’s business. (Id.)
• Examples where services are not part of the hiring entity’s usual course of business:
• When a retail store hires an outside plumber to repair a leak in a bathroom on its premises.
• When a retail store hires an outside electrician to install a new electrical line. (Id.)
• Examples where services are part of the hiring entity’s usual course of business:
• When a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company.
• When a bakery hires cake decorators to work regularly on its custom-designed cakes. ( at 959-960.)
PART C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?
• The hiring entity must prove that the worker is customarily and currently engaged in an independently established trade, occupation, or business. (Dynamex, 4 Cal.5th at 963.)
• The hiring entity cannot unilaterally determine a worker’s status simply by assigning the worker the label “independent contractor” or by requiring the worker, as a condition of hiring, to enter into a contract that designates the worker an independent contractor. (Dynamex, 4 Cal.5th at 962.)
• Part C requires that the independent business operation is in existence at the time the work is performed. The fact that it could come into existence in the future is not sufficient. (See Garcia v. Border Transportation Group, LLC (2018) 28 Cal.App.5th 558, 574.)
• An individual who independently has decided to go into business generally takes the usual steps to establish and promote that independent business. Examples of this include:
• Incorporation, licensure, advertisements;
• Routine offerings to provide the services of the independent business to the public or many potential customers, and the like. (Dynamex, 4 Cal.5th at 962.)
• If an individual’s work relies on a single employer, Part C is not met. For example, Part C was not satisfied where a taxi driver was required to hold a municipal permit that may only be used while that driver is employed by a specific taxi company. (See Garcia, 28 Cal.App.5th at 575.)

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