CPSA has been working on AB 5, the Dynamex implementation bill, since before it was introduced. As previously reported, our goal was to find a balance for legitimate businesses to operate, relying on various forms of contracting and employment. As it was considered by various committees, each committee processed new sets of amendments to the bill.
As AB 5 passed the Senate Labor, Public Employment and Retirement Committee, the bill applied the Dynamex Court decision across all employment situations but exempted specific professionals who tend to operate most effectively as independent contractors. The bill’s exemptions initially included insurance agents and brokers, securities brokers, physicians, and direct sales representatives to mention a few. As more exemptions were needed, the bill was amended to include a business-to-business exception and a construction industry exception. When the bill refers to “exemptions,” it means these professionals, individuals or businesses stay under the Borello test that has been the law in California for decades, rather than are governed under the Dynamex “ABC Test.”
Under the construction industry exemption, the contractor is subject to the Borello test if they demonstrate that all the following criteria are satisfied:
- The subcontract is in writing.
- The subcontractor is licensed by the Contractors State License Board and the work is within the scope of that license.
- If the subcontractor is domiciled in a jurisdiction that requires the subcontractor to have a business license or business tax registration, the subcontractor has the required business license or business tax registration.
- The subcontractor maintains a business location that is separate from the business or work location of the contractor.
- The subcontractor has the authority to hire and to fire other persons to provide or to assist in providing the services.
- The subcontractor assumes financial responsibility for errors or omissions in labor or services as evidenced by insurance, legally authorized indemnity obligations, performance bonds, or warranties relating to the labor or services being provided.
- The subcontractor is customarily engaged in an independently established business of the same nature as that involved in the work performed.
These criteria clarify the requirements for the swimming pool and spa industry for pool builders who use subcontractors to complete projects. Pool service and maintenance companies could also utilize this exception where the pool service person or subcontractor is licensed as a D-35 Pool and Spa Maintenance Contractor.
Before passing out of the Senate Appropriations Committee, AB 5 contained more amendments to add exemptions for commercial fishermen, graphic design artists, fine artists, enrolled agents, and grant writers. Among those amendments was a new exempt category defined as the relationship between a referral agency and a service provider. “Referral agency” is a business that connects service providers with clients that provide graphic design, event planning, minor home repair, moving, home cleaning, errands, furniture assembly, animal services, dog walking, web design, picture hanging, pool cleaning, and yard cleanup.\
The “referral agency” designation is important as it provides for an independent contractor option for pool service and maintenance through a referral business, such as TaskRabbit, and adds an independent contractor who is a D-35 licensee for pool cleaning to the list of jobs that can be referred by another business or service.
Specifically, if a business entity provides services (“service provider”) to clients through a referral agency, the determination whether the service provider is an employee of the referral agency shall be governed by Borello, and demonstrates that all of the following criteria are satisfied:
(A) The service provider is free from the control and direction of the referral agency in connection with the performance of the work for the client, both as a matter of contract and in fact.
(B) If the work for the client is performed in a jurisdiction that requires the service provider to have a business license or business tax registration, the service provider has the required business license or business tax registration.
(C) If the work for the client requires the service provider to hold a state contractor’s license pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code, the service provider has the required contractor’s license.
(D) The service provider delivers services to the client under the service provider’s name, rather than under the name of the referral agency.
(E) The service provider provides its own tools and supplies to perform the services.
(F) The service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed for the client.
(G) The service provider maintains a clientele without any restrictions from the referral agency and is free to seek work elsewhere, including through a competing agency.
(H) The service provider sets its own hours and terms of work and is free to accept or reject clients and contracts.
(I) The service provider sets its own rates for services performed, without deduction by the referral agency.
(J) The service provider is not penalized in any form for rejecting clients or contracts. This subparagraph does not apply if the service provider accepts a client or contract and then fails to fulfill any of its contractual obligations.
These provisions specifically apply to swimming pool cleaning so long as the service is performed in the name of the service provider, not the referral entity and all the other conditions to this section are met.
On Friday, August 30, AB 5 survived a major legislative hurdle when it passed the important Senate Appropriations Committee. The bill is now on the Senate floor which will need to be voted on by early next week to be returned to the Assembly to confirm amendments made in the Senate.
Over the Labor Day weekend, Governor Gavin Newsom formally endorsed the legislation, which virtually guarantees a signature if the State Legislature sends him the bill in the next couple of weeks. As the California Legislature adjourns for the year on Friday, September 13, Governor Gavin Newsom has until October 13 to sign or veto all bills sent to him by the Legislature or let them become law without his signature.