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AB 5 Passes Legislature - Awaits Governor's Signature

SACRAMENTO, CA, Sept. 11, 2019 -- The California Legislature passed AB 5, a bill that in part will exempt independent insurance agents and brokers from the Dynamex Decision, and the measure now awaits Gov. Gavin Newsom's signature before becoming law. 

In its last week of the 2019 legislative session. arguably the most controversial bill of the session, AB 5, passed the state Senate last night 29-11 after more than two hours of debate. Then the Assembly concurred in Senate amendments 58-15 this morning sending the bill to the Governor for signature. As the Governor endorsed the bill in an editorial over Labor Day weekend, the bill is sure to be signed into law. However, this issue is far from over.

The author of the bill, Assemblywoman Lorena Gonzalez of San Diego, committed to ongoing discussions relative to exemptions for other interests after Senate Republicans proposed 12 sets of amendments to exempt other businesses such as independent truckers, design and safety consultants, forest and timber workers, physical therapists, franchisors, translators, nonprofit organizations, rabbi and priests and more. Gig economy icons Uber, Lyft and DoorDash have banked $90 million dollars to fund either a referendum on AB 5 or an initiative to address this topic in a way that would provide them some relief.  Other organizations have threatened a lawsuit in equal protection grounds.

What AB 5 Means For Insurance Agents

Independent agents and brokers licensed as Broker-Agents, Life or Health Agents or Surplus Lines Brokers were specifically exempted from the Dynamex decision in the very first set of amendments to AB 5 in March of this year, according to IIABCal Lobbyist John Norwood. This exemption applies to licensees working for independent agents and brokers, as well as licensees working for captive insurers and direct writers, licensees practicing in the life and health insurance fields and surplus line brokers.

"On both floors of the Legislature opponents of the bill critiqued the process as picking winners or losers based on who had the best lobbyists that could obtain an exemption to the Dynamex decision in the bill<" Norwood said. "That is an easy criticism designed to draw headlines, however, there was quite a bit more to it than that. Certainly it is critical to have an ongoing and respected lobbying presence in Sacramento in order to be successful. But organizations such as IIABCal who were successful in gaining an exemption had to build a compelling case to the author and proponents of the bill and be dogged in our advocacy in order to win."

IIABCal: A Critical Part Of The Process

IIABCal started this process at the end of the legislative session last year. Rather than trying to move a bill on the heels of the court decision in 2018, as some in the industry has advocated, IIABCal reached out to organized labor to obtain an agreement to have discussions in the legislative interim. In the Fall IIABCal, though Nowood, had extensive discussions to educate labor on how the insurance industry operated and the tradition of utilizing independent agents and brokers and other independent contractors as the sales force for insurers dating back over 100 years. We then committed this information to writing so that this information could be circulated among the some 60 member labor organizations that make up the California Labor Federation.

"IIABCal took the lead in this effort because we had an existing relationship with organized labor from being involved in workers' compensation issues over the years<" Norwood said, "The fact that we have agents and brokers in legislative districts throughout California and because, as truly independent businesses, we were the more sympathetic group. Some captive insurers and life insurers have already experienced lawsuits by producers relative to misclassification and that would not sit well with organized labor groups that were automatically suspect of any group requesting an exemption."

IIABC then retained expert legal counsel specializing labor and employment issues in order to draft our own legislation to be introduced in 2019. 

"Our retained counsel looked at numerous other states who which already had in place the ABC Test adopted by the California Supreme Court in the Dynamex case in order to craft the best draft the best legislative exemption," Norwood said. "We also reached out to the National Association of Insurance & Financial Planners-CA and the California Association of Health Underwriters to join forces because they have respected lobbying operations in Sacramento and because they are the only other organizations representing independent agents that have any presence at the Capitol."

IIABCal lined up Assemblyman Ken Cooley, Chairman of the powerful Assembly Rules Committee and Assemblyman Tom Daly, Chairman of the Assembly Insurance Committee, as joint authors of AB 233,  one of only 2 bills introduced in 2019 on this topic other than AB 5. Although organized labor controlled the playing field on this issue, introducing our own bill was designed to create some leverage to assure that our issue would be addressed in one bill or the other.

"Ultimately the author of AB 5 and organized labor agreed with the case we had made and agreed to an amendment exempting insurance agents and brokers from the Dymanex decision."  According to Norwood, the key points were:

1) There is a tradition in the insurance industry utilizing independent contractors:

2) Our business participants do not have a history of being unfairly treated and are truly independent; and 

3) because in most cases our members are appointed agents and therefor under agency law are the company, are members are most often paid by commission that are part of the premium and because of the in-lieu tax, there is no way an insurer could be successful in court in proving the element of the ABC Test to overcome the presumption of employee status without a statutory exemption.

"It seems somehow insufficient to sum up what has taken decades of hard work, untold dollars and the association's commitment to building a respected government relations program in California to be in a position to achieve a result of such import to our members and the entire insurance industry," Norwood said.

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