AB-5 Exempts Insurance Agents From ABC Test – But Not Borello
On September 18th, 2019 AB-5 was signed into law by the California Governor. This law clarifies the ABC Independent Contract test and importantly for our industry, exempts insurance agents from this test. However, it is critical to ensure that you are not in violation of the independent contractor rules under the Borello test if you use producers under a 1099. The most conservative advice we can give our members is to make all your producers employees as this solves any potential problems you may run into by using the independent contractor channel. In the end, you own and manage your insurance agency and hold the responsibility for making your own business decisions. Our desire is simply to help keep our members informed and updated.
Here is a link to the summary of the new AB-5 law:
Here is a link to some other contextual information regarding the Borello independent contractor test as it relates the Dynamex decision, now AB-5. In the AB-5 law, there is a reference to Borello applying even though the ABC test is exempted:
” This bill would state the intent of the Legislature to codify the decision in the Dynamex case and clarify its application. The bill would provide that for purposes of the provisions of the Labor Code, the Unemployment Insurance Code, and 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 the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation, or business. The bill, notwithstanding this provision, would provide that any statutory exception from employment status or any extension of employer status or liability remains in effect, and that if a court rules that the 3-part test cannot be applied, then the determination of employee or independent contractor status shall be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello). The bill would exempt specified occupations from the application of Dynamex, and would instead provide that these occupations are governed by Borello. These exempt occupations would include, among others, licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry. “
In closing, make sure you are aware of how you utilize independent contractors and the impact the new law has on your business. Having your producers on your payroll as employees is still the most conservative approach.
Happy “HR”ing. Cheers from the Tague Team!