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LEGAL NEWS


is a stricter test when compared to the multi-factor analysis set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). Despite this new ABC Test, the Borello factors remain important because they determine when AB 5 is inapplicable or when exemptions apply.


The Borello Test Te Borello test involved the


principal factor of whether the “person to whom the service is rendered has the right to control the manner and means of accomplishing the result desired.” Indeed, much of the text of AB 5 concerns several exemptions from the strict ABC Test. Te construction industry obtained such an exemption. However, it should be emphasized that the standards of any exemption will be strictly construed. AB 5 excludes from its coverage


certain professions such as engineers and architects and also relation- ships “between a contractor and an individual performing work pursuant to a subcontract in the construction industry” that meet certain criteria. Prior to AB 5, contractors had to meet Labor Code Section 2750.5 and the Borello factors to prove a worker was an independent contractor. Labor Code Section 2750.5 creates


a rebuttable presumption that “a worker performing services for which a [contractor’s] license is required…is an employee rather than an independent contractor.” To disprove the presumption,


employers must demonstrate that the worker “has the right to control…as to the manner of performance of the contract”; “is customarily engaged in an independently established business”; and that the independent contractor is bona fide, as proven by the traditional Borello factors. Now they must meet all of the AB 5 criteria for this exemption, as well as Borello and Labor Code Section 2750.5. Te AB 5 criteria for this exemption are as follows:


www.AGC-CA.org


Contractors should understand that if they are not in strict compliance with AB 5 and pay employees as independent contractors, they face significant potential liability and are vulnerable to labor claims, DIR Civil Wage Penalty Assessments, and increased premiums for Employment Practice Liability Insurance.


 Te subcontract is in writing.  Te subcontractor is licensed by


the Contractors State License Board, and the work is within the scope of that license. (Note: Tis requirement does not apply to a subcontractor providing trucking services for which a contractor’s license is not required if certain requirements are met.)


 If the subcontractor is domiciled in a jurisdiction that requires the subcontractor to have a business license or business tax registration, the subcontractor has the required business license or business tax registration.


 Te subcontractor maintains a business location that is separate from the business or work location of the contractor.


 Te subcontractor has the authority to hire and to fire other persons to provide or to assist in providing the services.


 Te subcontractor assumes financial responsibility for errors or omissions in labor or services as evidenced by insurance, legally authorized indemnity obligations,


performance bonds, or warranties relating to the labor or services provided.


 Te subcontractor is customarily engaged in an independently established business of the same nature as that involved in the work performed.


Potential Liability Contractors should understand


that if they are not in strict compliance with AB 5 and pay employees as independent contractors, they face significant potential liability and are vulnerable to labor claims, DIR Civil Wage Penalty Assessments, and increased premiums for Employment Practice Liability Insurance. At a minimum, to potentially guard


against the harsh consequences of AB 5, it is recommended that a contractor should not proceed with work without written subcontract agreements, which is far too often something that occurs in the industry. 


Mary A. Salamone is a partner with Atkinson, Andelson, Loya, Ruud & Romo (AALRR), a member of the AGC Legal Advisory Committee. For more infor- mation, please visit www.aalrr.com.


AGC CALENDAR OF EVENTS


January 31, 2020 AGC 2020 Installation & Awards Gala at the Fairmont San Fran- cisco Hotel.


February 20, 2020 AGC Los Angeles, Orange County, and Riverside-San Ber- nardino Districts’ annual Wine & Beer Social at the Summit House in Fullerton


March 9-10, 2020


AGC of America National Con- vention & CONEXPO/CON/AGC Trade Show, Las Vegas, NV


Associated General Contractors of California 17


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