LEGAL NEWS


The Impact of California AB 5: What Contractors Should Know


By Mary Salamone, Atkinson, Andelson, Loya, Ruud & Romo O


n September 18, 2019, Governor Gavin Newsom signed into law Assembly


Bill 5 (AB 5), a controversial legis- lation which will have a substantial impact on California employers when it takes effect on January 1, 2020. AB 5 codifies the California Supreme Court holding last year in Dynamex Opera- tions West, Inc. v. Superior Court of Los Angeles, 4 Cal.5th 903 (2018) estab- lishing a new test to determine whether a worker is an independent contractor or an employee. Te question becomes what this


change signifies for the construction industry. Te new law is complex, imprecise and contains several excep- tions and nuances such that one can only offer illumination as opposed to definitiveness. In fact, the author of AB 5 has already promised “clean up” legislation.


The ‘ABC Test’ Te Dynamex decision estab-


Insurance Continued from page 15


contract, and damages resulting from such breach would be charged to the contractor’s account. If the contractor can’t cover such uncovered damages, the owner could call on his bond. Te new specs also require an


owner to select per occurrence primary General Liability and auto limits. Tis can be accomplished using a combi- nation of primary and excess coverage. I strongly recommend that primary limits of $2 million/$4 million and auto limits of $1 million be used. In addition, excess coverage limits


16 January/February 2020


lished what is called the “ABC Test” to determine if a worker should be classified as an employee or an independent contractor for purposes of California wage orders, which impose obligations relating to minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks). In Dynamex, two individual


delivery drivers, suing on their own behalf and on behalf of a class of allegedly similarly situated drivers, filed a complaint against Dynamex Operations West, Inc., a nationwide package and document delivery company, alleging that Dynamex had misclassified its delivery drivers as independent contractors rather than employees. Te drivers claimed that the alleged misclassification of its


of at least $3 million are necessary. Customary non–contributory endorse- ments should also be required for both primary and umbrella coverage.


Interpreting the Policy Forms Te AGC Standard Form subcon-


tract has a provision allowing the GC to obtain a copy of the subcontrac- tor’s GL and excess policies. Hiring a consultant experienced in interpreting these policy forms is a good idea. Normal staff are not qualified to review policies. Remember that the placement of a contractor’s liability insurance program


drivers as independent contractors led to the violation of the provisions of Industrial Welfare Commission Wage Order No. 9 (the applicable order governing the transportation industry) as well as various sections of the California Labor Code.


Te Dynamex court held


that workers are presumed to be employees unless all three of the following conditions are satisfied:


 Te person is free from control and direction in connection with the performance of the service, both under his/her contract for the performance of service and in fact; and


 Te person performs work that is outside the usual course of the hiring entity’s business; and


 Te person is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the work performed. If the worker fails any of these


three prongs, then the worker will be deemed an employee. Te ABC Test


is a complex matter. It should not be relegated to clerks in the back office. Multi-million-dollar liability settle- ments are increasing year by year. Tese could do irreparable damage to your balance sheet. 


Bob Mahan has served the construction industry as an independent broker for 40 years. He is currently a consultant in the insurance practice of Heffernan Insurance Brokers and also a risk management consultant to the industry. He can be reached at bob@mahanins.com or (949) 287-1300.


California Constructor


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