The construction industry has been paying close attention to recent decisions about subcontractors vs. employees in CA. The CA Supreme Court embraced a standard presuming that all workers are employees rather than contractors in the landmark Dynamex case -- a decision that left many industries in uncertainty.
In an industry where subcontracting work to independent contractors is the norm, construction business owners worried: what's this mean for me?
Assembly Bill No. 5 (AB5) calls for an amendment to CA's Labor Code and "creates a presumption that a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits".
AB5 is aimed at the misclassification of employees in the gig economy, like Uber, Lyft, and Doordash drivers. However, the ramifications of this bill could affect the construction industry, as well.
AB5 imposes a three-pronged test (known as the ABC test) identifying who's free to be a contract worker and who has to be a hired employee.
A person providing labor or services will be presumed to be an employee, rather than an independent contractor, unless the following 3 conditions are satisfied:
AB5 was signed into law in September of 2019 and becomes effective state law in CA on January 1, 2020.
AB5 amends 2750.3 of the California Labor Code, but leaves a crucial exception for "an individual performing work pursuant to a subcontract in the construction industry" if they meet all of the following criteria:
For the most part, specialty contractors and separate trades would still be considered an independent contractor, even under the AB5 ABC test.
Contractors and subcontractors may have some cause for concern when subbing out work they might typically undertake, themselves. However, most construction subcontractors would presumably be considered an independent contractor under this test.
California has long used the Borello test to determine if workers should be classified as employees or independent contractors. If a worker is exempt from AB5, the Borello guidelines will still apply when considering worker classification status.
Borello provides a laundry list of factors all taken together and weighed against one another. Under Borello, no single factor is enough to prove or disprove whether a person should be considered a contractor or an employee.
Both Dynamex and Borello operate under the assumption that a worker is an employee rather than an independent contractor.
Licensed individuals will generally be presumed to be employees unless proven otherwise. When someone is considered an independent contractor, the following factors must be proven:
By considering these factors and the Borello factors, there's more room to argue that a party performing construction work is an independent contractor rather than an employee.
AB5 specifically leaves room for construction subcontractors to be exempt from the new rules for independent contractors.
This means you and your construction business should have no problem passing the ABC test and relying on the existing guidelines to determine if a worker is an employee or subcontractor.
Just remember to let your subs perform their work at their own direction (don't micro-manage!); rely on subs only when you need work done that's outside of your usual work (not to increase your labor force); and be sure you're using subs who specialize in the work you're asking them to do.
As it's written, California AB5 shouldn't have a massive impact on the construction industry. But, it's up to the courts to determine how to apply the law when lawsuits arise. If you have questions about your workers or the impact of AB5 on your construction business, be sure to talk to your attorney for more clarification.
Contractor Websites Made Easy