Policyholder Notice Re: CA Assembly Bill No. 5 (AB 5), Independent Contractors

Date: Jul 30, 2020
By: Basi Insurance
In: 

Photo of Sacramento, California

SUMMARY OF ASSEMBLY BILL NO. 5 (AB 5): 

For the purpose of wages, workers’ compensation and other benefits, AB 5 creates a presumption that an entity’s workers are employees unless the hiring entity can show that the worker meets three conditions, known as the “ABC Test.” With respect to workers’ compensation, AB 5 went into effect on July 1, 2020 and applies to policies issued on or after July 1, 2020, as well as policies in force as of July 1, 2020.

The bill adds Section 2750.3 to the California Labor Code, which provides in pertinent part:

2750.3

(a)(1) For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

(2) Notwithstanding paragraph (1), any exceptions to the terms “employee,” “employer,” “employ,” or “independent contractor,” and any extensions of employer status or liability, that are expressly made by a provision of this code, the Unemployment Insurance Code, or in an applicable order of the Industrial Welfare Commission, including, but not limited to, the definition of “employee” in subdivision 2(E) of Wage Order No. 2, shall remain in effect for the purposes set forth therein.

(3) If a court of law rules that the three-part test in paragraph (1) cannot be applied to a particular context based on grounds other than  an express exception to employment status as provided under paragraph (2), then the determination of employee or independent contractor status in that context shall instead be governed y the California Supreme Court’s decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.

AB 5 also provides an extensive list of occupations that are exempt from the application of Section 2750.3(a)(1). These exemptions are subject to revision. In addition, AB 5 amends Section 3351 of the California Labor Code and Section 606.5 and 621 of the Unemployment Insurance Code. The pertinent sections of the California Labor Code and Unemployment Insurance Code may be accessed at:

https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=2750.3.&lawCode=LAB

You may also access more information on the California Labor & Workforce Development Agency webpage at

https://www.labor.ca.gov/employmentstatus/

This notice does not change the policy to which it is attached.

 

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