United States: Codifying Dynamex, California Dramatically Alters Employee v. Independent Contractor Classification Standard

Last Updated: September 26 2019
Article by Ryan Frazier and Steven G. Gatley

Calif. (September 20, 2019) - On September 10, 2019, the California Legislature passed Assembly Bill 5 (AB 5) in a 29-to-11 vote. Thereafter, on September 18, 2019, the bill was signed by Governor Newsom. The bill dramatically alters the legal standard for evaluating whether a worker is an employee or an independent contractor. Beginning January 1, 2020, many individuals classified as independent contractors may be considered employees. However, the bill contains exceptions for specific businesses in which workers will remain independent contractors.

The Purpose of Assembly Bill

Per the Legislative Counsel’s Digest, AB 5 was intended to “codify the decision in the Dynamex case and clarify its application.” Further AB 5 is also intended to prevent the loss of state revenue that “use[s] misclassification to avoid obligations such as payment of payroll taxes, payment of premiums for workers’ compensation, Social Security, unemployment, and disability insurance.” In addition, AB 5 will ensure that misclassified workers will be provided with the basic rights and protections, such as minimum wage, workers’ compensation benefits, unemployment insurance, paid sick leave, and paid family leave.

History of the Legal Standards

For many years, the Borello test was used to determine whether or not a worker was considered an independent contractor or an employee. (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.) In 2018, the California Supreme Court issued the Dynamex decision, which adopted a more liberal test, known as the “ABC test” to determine whether or not a worker was an independent contractor or an employee. (Dynamex Operations West, Inc. v. Superior Court of Los Angeles  (2018) 4 Cal.5th 903.) However, the test was limited to wage orders issued by the Industrial Welfare Commission. Id.

The Dynamex ABC Test

The ABC Test presumes a worker is an employee, unless the hiring entity can show the following three conditions are met to classify the worker as an independent contractor.

  1. The person 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 person performs work that is outside the usual course of the hiring entity’s business.
  3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed

The media interprets this bill to target ride-share companies and other “gig economy” companies. Whether or not this is the case, companies affected or possibly affected by this law may seek additional exceptions through legislation or lawsuits challenging the law itself. For example, Lyft is engaged in a social media advertising campaign, which asks customers to demand the legislature “Fix AB 5.”

Additional bills further modifying the same sections of the Labor Code are both possible and likely. For example, on September 14, 2019, at midnight, the legislature passed AB 170, which provided a timed exception to the changes in AB 5 for the newspaper industry involving the status of newspaper carriers, who are currently classified as independent contractors.

Professions/Businesses Exempt from AB 5

The main effect of AB 5 is to amend California’s Labor Code section 2750.3. Labor Code section 2750.3, as proposed, contains a long list of exceptions. The qualifications for each exception may be different, so a careful reading is required. In brief summary, many workers meeting the following descriptions will be fully exempt and will continue to fall under the Borello test:

  • Insurance Analysist and Brokers (LC 2750.3 (b)(1))
  • Physicians, Surgeons, Dentists, Podiatrists, Psychologists or Veterinarians (LC 2750.3 (b)(2))
  • Licensed Professionals in the following fields: Lawyer, Architect, Engineer, Private Investigator, or Accountant (LC 2750.3 (b)(3))
  • Securities Brokers or Investment Advisors (LC 2750.3 (b)(4))
  • Direct Salespersons (as defined by Section 650 of the Unemployment Code) (LC 2750.3 (b)(5))
  • Commercial Fishermen working on an American vessel through January 1, 2023 (LC 2750.3 (b)(6))
  • Newspaper distributors and carriers until January 1, 2021 (LC 2750.3 (b)(7))
  • Contracts for Professional Services in which the contracting individual satisfies an additional test. (LC 2750.3 (c)) This includes the following professions:
    • Marketing
    • Administration of HR
    • Travel Agent services
    • Graphic Design
    • Grant Writer
    • Fine Art
    • Enrolled Agents for IRS representation
    • Payment Processing Agent
    • Still Photographers or Photo Journalists (with exceptions)
    • Freelance Writing (with exceptions)
    • Licensed estheticians, licensed electrologists, licensed manicurists, licensed barbers or licensed cosmetologists (with additional exceptions)
  • Real Estate Agents (LC 2750.3 (d) – subject to a special test)
  • Repossession Agencies (LC 2750.3 (d) – subject to a special test)
  • “Business to Business relationships” in which one business performs a service for another (LC 2750.3 (e) – subject to a special test)
  • Subcontractors (individual or business) (LC 2750.3 (f) – subject to a special test)
  • Referral Agencies and Service Providing Business Entities (not individuals) (LC 2750.3 (g) – subject to a special test)
  • Motor Clubs (LC 2750.3 (h) – subject to proper licensing)

AB 5 Takes Effect on January 1, 2020

The new law applies to all work done after January 1, 2020, other than the exceptions detailed above – the codification of the exceptions applies retroactively, and for wage orders per the original Dynamex decision. (See, Labor Code section 2750.3 (i).)

Injunctive Relief Available to Prevent Continued Misclassification of Workers

Injunctive relief is available to “prevent the continued misclassification of employees” against the putative employer and can be undertaken by the attorney general, select city attorneys, and city prosecutors depending on the size of the city. (See, Labor Code section 2750.3 (j).)

AB 5 Will Apply to Workers’ Compensation Claims Beginning July 1, 2020

AB 5 will apply to workers’ compensation claims beginning July 1, 2020. There will not be retroactive application. This may create disputes with regards to cumulative trauma claims (e.g. claims that an applicant was injured gradually as a result of work activities over time) which span the date change in which the same person doing the same activities might become an employee on July 1, 2020 for claims made after July 1, 2020. The way the section is drafted may also give rise to claims that the section can be applied to “work” done after January 1, 2020. However, the code appears to be designed to only grant employee status (thus workers’ compensation benefits) starting on July 1, 2020. (See, Labor Code section 3351 (i).)

Current Employees Will Not Be Classified as Independent Contractors

The legislature indicated “no provision of this measure shall permit an employer to reclassify an individual who was an employee on January 1, 2019, to an independent contractor due to this measure’s enactment.”


For businesses who either utilize the services of independent contractors or insure those who do, it is important to note that significant business policy changes may be required in regards to the classification of workers, to either classify and treat them as employees, or to ensure that all standards are met to ensure the workers qualify as independent contractors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions