On September 18, 2019, California Governor Gavin Newsom signed Assembly Bill No. 5 (“AB 5“), which codifies the result of Dynamex Operations West v. Superior Court, No. S222732, a case that significantly changes the way employers can classify workers. As we previously discussed in, DYNAMEX UPDATE: Are There Still Independent Contractors in California?, the California Supreme Court decision established the “ABC” test for determining whether a worker is an employee or independent contractor for claims asserted under California’s Wage Orders. While AB 5 greatly affects California’s extensive gig economy, it also affects healthcare employers who must assess whether their workers need to be reclassified as employees under the California Labor Code, Unemployment Insurance Code and Wage Orders—the reclassification assessment is made particularly tricky because certain licensed professionals are exempt from the ABC test and are instead subject to the longstanding Borello test.
AB 5 redefines “employee” to mean, “an individual providing labor or services for remuneration who has the status of an employee rather than an independent contractor, unless the hiring entity demonstrates that the individual meets all of the specified conditions, including that the individual performs work that is outside the usual course of the hiring entity’s business.” Those specified conditions are the elements of the ABC test. Employers must reclassify workers as employees if the work arrangement fails to satisfy any of conditions: “(A) 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; (B) The person performs work that is outside the usual course of the hiring entity’s business; and (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.”
Healthcare employers should note physicians, surgeons, dentists, podiatrists and psychologists performing healthcare services to or on behalf of a healthcare entity are explicitly exempt from the ABC test. Instead, healthcare entities should apply the Borello test when determining whether any of those licensees are employees or independent contractors. AB 5 does not provide any such exemption for nurse practitioners, nurse anesthetists, pharmacists, medical technicians, physician’s assistants and occupational, respiratory, speech or physical therapists, so those professionals are not exempt from the ABC test.
Healthcare employers should also note that AB 5 does not permit an employer to reclassify an individual who was classified as an employee on January 1, 2019, to an independent contractor as a result of the law’s passage. Therefore, employers who changed the status of their independent contractor physicians, dentists or psychologists to employees, may not reverse the reclassification, even though AB 5 provides an exception for such professionals.
Under AB 5, a professional may be classified as an independent contractor if all of the following conditions are met: “(A) The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity; (B) If work is performed more than six months after the effective date of this section [January 1, 2020], the individual has a business license, in addition to any required professional licenses or permits for the individual to practice in his or her profession; (C) The individual has the ability to set or negotiate his or her own rates for the services performed; (D) Outside of project completion dates and reasonable business hours, the individual has the ability to set his or her own hours; (E) The individual is customarily engaged in the same type of work performed under contract with another hiring entity or holds himself or herself out to other potential customers as available to perform the same type of work; and (F) The individual customarily and regularly exercises discretion and independent judgement in the performance of the services.”
The new law goes into effect January 1, 2020, which means healthcare employers should begin determining whether their independent contractors are actually employees in light of the law’s reversion to the Borello test for certain licensed professionals.