Worker Status: CalCPA Stops AB 1720 (CA False Claims Act).

• Position: CapitolBeat

The Legislature sent AB 5 to the governor's desk toward the end of the legislative session, where it is expected to be signed. The so-called "Dynamex" bill makes sweeping changes related to when a worker is classified as an employee or an independent contractor, and will impact nearly every business industry in California.

Codification of the New 'ABC Test: AB 5 codifies the ABC test for employee status adopted in the CA Supreme Court's 2018 decision in Dynamex v. Superior Court, which set a new standard for determining when a worker is an independent contractor. To qualify as an independent contractor, an employer must prove: (A) the worker is free from control and direction of the hirer in connection with performing the work, both under contract and in fact; (B) the worker performs work outside the usual course of the hiring entity's business; and (C) the worker engages in an independently established trade, occupation or business of the same nature as the work performed for the hirer.

AB 5 also expanded the ABC test to labor, unemployment insurance and wage order laws, and empowers the CA Attorney General and local government attorneys to pursue legal action against businesses suspected of misclassifying independent contractors.

Select Exemptions: AB 5 exempts many professions and occupations--including CPAs--from the stricter ABC test and would instead fall under the prior rules. Other professional exemptions include physicians, surgeons, dentists, podiatrists, veterinarians, psychologists, lawyers, architects, engineers, insurance brokers, securities broker-dealers, investment advisors, real estate agents, certain direct salespersons, commercial fishermen, and building contractors.

AB 5 also contains a business-to-business exemption for certain professional services, including marketing, HR administration, travel agents, graphic designers, grant writers, fine artists, enrolled agents, payment processing agents, photographers and photojournalists, freelance writers, editors or cartoonists, professionals providing cosmetic services (like licensed barbers, manicurists, esthelicians), tutors and certain tow truck drivers.

What's Next?: Every company doing business in California will now need to analyze their relationships with their workers and business vendors--and potentially restructure operations--to evaluate compliance under the new rules. Misciassification of workers can result in significant legal and tax issues.

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