Earlier this year, California Gov. Gavin Newsom signed into law a bill reducing an employer’s ability to classify a worker as an independent contractor.

The question everyone in senior care — those who run nursing homes and continuing care retirement communities, in particular — should be asking about this new “gig worker” law is, “How does it affect me?”

As Yoda would say, “A complicated question, that is.”  

The Dynamex Decision

The new law, AB5,  expands on a 2018 California Supreme Court case, Dynamex Operations West, Inc. v. Superior Court of Los Angeles, in which a group of drivers challenged whether the national courier and delivery service properly classified them as independent contractors.  

Dynamex drivers set schedules and routes (but must deliver daily), provide their vehicles and workers’ compensation insurance, pay expenses and taxes. They can hire others and work for other companies. Dynamex pays the drivers a flat fee or percentage.   

The state Supreme Court adopted a standard that presumes all workers are employees. The court further stated a business then must establish that its independent contractor worker classification is proper under an “ABC” test. Under that test, a worker is an employee for wage order purposes, unless the business can demonstrate:

(A) the worker is free from the entity’s control and direction in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) the worker performs work that is outside the entity’s usual course of business; and

(C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

AB 5

Initially meant to “clarify” the Dynamex decision, AB5 significantly changes the worker classification landscape in California. AB5’s methodology scoops up just about all California workers and potentially converts a significant number of them from independent contractors to employees.

At its most basic level, AB5 does two things. First, it specifically adopts Dynamex’s ABC test and thus codifies Dynamex’s “presumption” of employee status. Second, it exempts certain professions. Of particular note for senior care providers: Although AB5 exempts from its reach doctors, dentists, psychologists and podiatrists, many other medical professions and specialists that providers may use are not exempted, including behavioral, speech and physical therapists, nurses and optometrists.

It does exempt, among others, such nonmedical professions as hairstylists and barbers, freelance writers and photographers, subject to a showing that certain other varying conditions are met: The worker has their own office location, is licensed, has their own book of business, schedules their own appointments, is paid directly by clients, etc.  

Importantly, exemption from AB5 does not mean that workers are independent contractors.  Rather, it means a business can rely on a presumably more favorable test from an earlier court case to determine their workers’ classification. 

Impact of AB5 on senior care providers

Providers may rely on independent contractors to fill absences during employee leaves or when the providers don’t have sufficient census to hire specialists. Providers may have difficulty establishing the  “B” prong of the ABC test given that the use of many of these workers may be within “the usual course of the entity’s business.”

Query: What is the usual course of a CCRC’s business?  Is it to provide or support medical care services, or is it broader?  If the former, CCRCs likely will not be able to classify medical professionals as independent contractors because the services they provide are within the entity’s existing scope.

To the extent that providers do use these workers to fill in absences in a current work force or regularly use them instead of hiring them as employees, providers are exposing themselves to possible liability for unpaid wages and failure to provide worker’s compensation insurance, sexual harassment prevention training, mandatory sick leave, meal and rest periods and associated penalties for each of these as well as applicable unpaid taxes. 

Senior care providers have a lot to consider when looking outside their regular workforce for staffing assistance as AB5’s analysis is fact specific. 

Do you use hairstylists for your residents/patients, freelance writers to assist in newsletters, designers for your website, musicians for resident/patient entertainment or therapy?

Some contractors may pass Prong B’s scrutiny, some may not. Getting a jump start with an internal audit with your labor counsel to determine whether your service providers come within AB5’s reach — and thus should be classified as employees — is essential for compliance.  Start with a full list of all your IRS form 1099 workers.

Only once you determine whether you are at risk can you determine a path forward. Options may include making contractors employees, stopping certain services or outsourcing. 

Uber, Lyft and DoorDash already have taken to heart Yoda’s warning to Luke: “Do or do not.  There is no try.” They have initiated the Protect App-Based Drivers & Services Act, a combined $90 million statewide ballot initiative targeting AB5.

In an effort to be responsive to criticisms about the gig economy’s lack of “employee” protections for workers, the initiative proposes protections and benefits for drivers, including an earnings guarantee, healthcare stipend, occupational accident insurance to cover on-the-job injuries, automobile accident and liability insurance, and protection against discrimination and sexual harassment.

Depending upon the success of this effort, more industry-based employers may try a similar path to get out from under AB 5’s reach.

Diane Marie O’Malley, Esq., is a senior partner in Hanson Bridgett’s Labor and Employment Section. Her practice concentrates exclusively on representing employers, mainly in the senior care and public transit industries.