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California Passes Independent Contractor Law

October 16, 2019 9:12 AM | Dara Cormany (Administrator)

In September, California’s legislature passed new legislation affecting worker status for employees and independent contractors. California Assembly Bill Number 5 effectively bans companies from classifying most workers in California as independent contractors. The law also outlines some exceptions to the new rule and establishes a three-pronged test for determining independent contractor status in California. The first element of the test requires the worker to be free from the control of the hiring organization. This condition must exist in the text of the contract as well as in the practice of the contractor’s work. The second element of the test requires the work being performed to be outside the normal course of business for the hiring organization. The third element of the test is a requirement for the contractor to be involved in an occupation or trade that is independently established and the same type of work that is being performed for the hiring entity. This test makes the presumption that a worker is an employee unless all the elements are demonstrated by the hiring organization.

The legislation, which amends the California labor code, also makes exemptions for some workers and circumstances. The exempted occupations include attorneys, doctors, direct sales salespersons, and numerous others. If a worker does not fall under one of the exceptions named by the legislation, there is a chance they may be classified as a professional services contractor and exempted from the new guidelines. The law also names several criteria for an individual to qualify for the professional services exemption, including the person maintaining a business located outside of the hiring organization's address, a requirement for the person to have a business license and several other conditions. This new law was signed by California's governor in September and goes into effect on January 1, 2020.

This information has been provided from PPAI's Government Relations Today and used with permission from PPAI. 

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