Alert: AB5 Codifies Big Changes in California’s Independent Contractor Classification
California governor Gavin Newsom’s recent signing of Assembly Bill No. 5 (“AB5”) could potentially reclassify millions of independent contractors as employees and dramatically reshape the future of workforces in California. This legislation, in particular, could have far reaching effects on the medical practice industry.
What is AB5?
AB5 codifies, clarifies, and grants exemptions to a 2018 California Supreme Court decision called Dynamex. Basically, AB5 and Dynamex make it harder for companies to label workers as independent contractors. AB5 offers the “ABC” test to determine independent contractor status. Under this test, a worker is presumed to be an employee unless ALL three of the following criteria are met:
- the worker is free from control and direction in the performance of services,
- the worker is performing work outside the usual course of the business of the hiring company, and
- the worker is customarily engaged in an independently established trade, occupation, or business.
Not only is the AB5 definition of an independent contractor much narrower than the previously used standard, called the Borello test, but the ABC test puts the burden on the hiring entity to prove independent contractor status. More information on the AB5 law and how it may apply to you can be found on the California Labor and Workforce Development Agency website.
Who is exempt from AB5?
Dozens of professions won exemptions under this new law, and in those who are exempt will use the more lenient Borello test for employee classification questions. Exemptions affecting the medical industry include physicians, dentists, podiatrists, and psychologists. Other exempt licensed professionals include veterinarians, estheticians, electrologists, manicurists, barbers, and cosmetologists. In addition, in order for the above-mentioned licensees to be subject to the more lenient Borello test, the company must also show that the worker:
- sets their own rates and hours and processes their own payments,
- receives payment directly by the client, and
- maintains their own license and book of business.
What does this mean for medical practices in California?
Medical practices, including surgical practices, medical spas, weight loss centers, IV hydration bars, functional medicine practices, and practices offering other anti-aging or wellness medical services, must look at their staffing model to prevent this misclassification on both a state and federal level. Potential liabilities and fines for misclassification can be costly. Company’s employing or contracting with personnel should make sure they understand who will qualify as an independent contractor under AB5. For more information and guidance on AB5 and Dynamex, schedule a consult at firstname.lastname@example.org.