The Potential Impact of AB 5 on the Recreational Diving Industry in California

California Assembly Bill 5 was signed into law in September 2019, marking a departure from the state’s previous definitions of “employee” and “independent contractor.”  With many dive businesses in California utilizing diving instructors, photographers, repair technicians and others on an independent contractual basis, this new law may have an impact on your business operations.  The law went into effect on January 1, 2020.

While DEMA cannot dispense legal advice, we do strongly suggest that all dive businesses consult with their legal counsel about how AB 5 could impact them, prior to using “independent contractors.” 

Background:

This law codifies a California Supreme Court Decision from 2018 involving Dynamex, a courier and delivery service that offers on-demand and same day pickup and delivery services nationwide.  In 2004 Dynamex converted its drivers from employees to independent contractors and a group of drivers sued to retain the protections available to “employees.” The California Supreme Court issued a decision in April 2018 wherein the court reinterpreted S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989), a test that has long been utilized in California for determining whether a worker should be classified as an “employee” or “independent contractor” for the purposes of a wage order. 

In reassessing Borello, the court adopted a new standard that presumes ALL workers in California are EMPLOYEES instead of contractors.  The court ruling places the burden of correctly classifying the worker on the EMPLOYER, and the classification decision is made by using a required three-part “ABC test.” While this is the first time such a test has been created by a court without legislative approval, similar tests do exist in other states, adopted by their respective legislatures.    AB 5 now makes this “ABC test” part of the California labor code.

What is Required to Classify a Worker as an Independent Contractor?

According to AB 5, employers can only classify a worker as an “independent contractor” by establishing that such classification is proper under the newly adopted “ABC Test.” A “no” answer to any of these standards presumes the person is an employee rather than an independent contractor.

PART 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.

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

PART 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.

AB 5 also retains the 12-part Borello test for certain professions.  Additional details can be found on this website. https://www.dir.ca.gov/dlse/FAQ_IndependentContractor.htm

AB 5 has been tied to worker issues in the “gig economy.” For example, under this law it appears that drivers for Lyft or Uber could be reclassified to “employees” rather than independent contractors.  As such, the hiring entities (Lyft or Uber in this example) are now required to pay payroll taxes and premiums for workers’ compensation, Social Security, unemployment, and disability insurance. 

While some professions have been exempted from the law, the law itself is generating confusion, and until enforcement begins taking place there may be conflicting opinions arising from the bill’s implementation.  DEMA highly recommends contacting your legal counsel to obtain their opinion and advice on the use of independent contractors.