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Labor Agrees To Exempt Insurance Agents and Brokers From Dynamex Decision

SACRAMENTO, CA, March 27, 2019 — Insurance agents and brokers would be exempted from the Dynamex decision of the California Supreme Court, which severely restricted the ability of employers to hire workers as independent contractors, under amendments suggested by IIABCal to a California Assembly Bill (AB 5) being sponsored by the California Labor Federation.

The bill, which the politically powerful labor group supported in an effort to preempt an onslaught of other Dynamex-related bills, would codify last year’s Supreme Court decision in the Labor Code, but also add four express exemptions from the new rules.  The very first exemption, which IIABCal lobbyist John Norwood proposed to the Federation, would be for any “person or organization who is licensed by the Department of Insurance pursuant to Chapter 5 (commencing with Section 1621), Chapter 6 (commencing with Section 1760), and Chapter 8 (commencing with Section 1831) of Part 2 of Division 1 of the Insurance Code.”

The Dynamex decision, issued last year by the California Supreme Court, dramatically changed state law on independent contractors.

Historically, administrative agencies and courts have developed a variety of rules for distinguishing employees from independent contractors.  While the exact scope of those rules varied, all were focused at their core on the extent to which an employer did or could “control” the actions of the worker; the greater the level of control, the more likely the worker was to be regarded as an employee.

In Dynamex, the Supreme Court effectively threw out the old rules and adopted a new “ABC test.”  To qualify as an independent contractor, an employer must now prove all of the following:

A)    That the worker is free from the control and direction of the hirer in the performance of the work; and

B)    That the worker performs work outside the usual course of the hiring entity’s business; and

C)    That the worker is customarily engaged in an independently-established trade, occupation or business of the same nature as the work being performed for the hiring entity.

For insurance agencies and brokerages, the second prong of the new test is the biggest change, and the most difficult to meet:  An independent contractor must be doing work that is OUTSIDE the usual course of the hiring entity’s work—which in practical effect means that agencies can no longer hire producers or CSRs or similar agency personnel as independent contractors.

Other states have enacted rules similar to the ABC test, and many of those states have seen fit to enact exemptions for the insurance industry.   As amended this week, AB 5 would recognize only four exemptions to the new “ABC Test”:  1) insurance agents and brokers; 2) doctors; 3) financial advisors; and 4) “direct sellers” of products, such as “Mary Kay Cosmetics” salespersons.  The author of the legislation, Assemblywoman Lorena Gonzales (D-San Diego) has been quoted as saying that additional exemptions and further amendments to the bill are likely as it works its way through the legislative process.

If enacted, AB 5 would effectively restore prior law to the business of insurance—meaning that insurance companies, and insurance agencies and brokerages, could elect to hire licensees as either employees or independent contractors, provided the terms of employment were legally consistent with those classifications.

Gonzales has said that big “gig economy” employers, such as Uber and Lyft, have not been exempted—and won’t be.

Another bill sponsored by IIABCal, AB 233, co-authored by Assemblyman Tom Daly (D-Anaheim) and Ken Cooley (D-Sacramento), would permit insurance agents and brokers to elect whether they wish to work as employees or independent contractors, provided certain requirements were satisfied.  Daly is the chairman of the Assembly Insurance Committee; Cooley is one of its most respected members.   That bill remains alive.

Here is the text of AB 5, as amended this week: