Independent Contractor Classification Legislation

Question:  I read your newsletter about the court case involving independent contractors, but now I’m hearing about a new rule regarding worker classification.  What’s the status?

Answer:  On September 18, 2019, California Governor Gavin Newsom signed Assembly Bill (AB) 5 codifying the stringent three-part “ABC” test that was set forth by the California Supreme Court last year in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (Dynamex) to evaluate whether a worker is correctly classified as an independent contractor.

Historically, in determining whether a worker was an employee or an independent contractor, California courts, the Labor Commissioner, Internal Revenue Service, and the Employment Development Department used the eleven-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (Borello). The Borello test primarily focuses on whether a business has control over the means and manner of performing contracted work, while considering additional secondary factors such as the method of payment, the length of time the services are to be performed, and who provides work tools.

In Dynamex, the California Supreme Court adopted a new test for determining whether a worker is properly classified as an independent contractor as opposed to an employee.  The Dynamex “ABC Test” presumptively considers all workers to be employees for purposes of Wage Order claims unless the employer can prove that the worker satisfies the following three conditions:

(A) the worker is free from the control and direction of the hiring entity 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 usual course of the hiring entity’s business; and

(C) the worker is customarily engaged in an independently established trade, occupation, or business.

Under Dynamex, failure to satisfy any one of these three elements means that a worker must be classified as an employee for purposes of the California Wage Orders (e.g., claims for minimum wage, overtime, etc.).  Under AB 5, the Dynamex  test applies not only for purposes of the California Wage Orders, but also for all Labor Code and Unemployment Insurance Code claims, meaning that now the “ABC Test” will apply to additional claims to which it previously did not apply.

Notably, due to extensive lobbying efforts during its drafting, AB 5 contains numerous exemptions from the Dynamex test for particular occupations and relationships.  Subject to certain licensing and other requirements, the following occupations are subject to the Borello test instead of the Dynamex test:

  • Doctors (physicians, surgeons, dentists, podiatrists, veterinarians, psychologists)
  • Professionals (lawyers, architects, engineers)
  • Professional service providers (marketing, human resources administrator, travel agents, graphic designers, grant writers, fine artist)
  • Financial services (accountants, securities broker-dealers, investment advisors)
  • Insurance brokers
  • Real estate agents
  • Direct sales (compensation must be based on actual sales)
  • Builders and contractors
  • Freelance writers and photographers (no more than 35 submissions to an outlet in a year)
  • Hair stylists and barbers (must be licensed, set own rates and schedule)
  • Estheticians, electrologists, and manicurists (if licensed)
  • Tutors (that teach their own curriculum, and that are not public school tutors)
  • Commercial fishermen
  • AAA-affiliated tow truck drivers.

AB 5 is very complex and the risks of misclassification are significant and can include back taxes owed to the federal and state government, as well as unpaid overtime and missed meal and rest period penalties.  If you use independent contractors, be sure to analyze their classification under AB 5, which can be viewed at

Changes to California’s Mandatory Sexual Harassment Prevention Training Law

Changes to California’s Mandatory Sexual Harassment Prevention Training Law
By Sara Boyns

On August 30, 2019 Governor Newsom signed Senate Bill 778, which extends the date for employers with five or more employees to provide mandatory sexual harassment prevention training to most of their employees.  Prior law stated that the training had to be completed by January 1, 2020, but SB 778, which takes effect immediately, extends the time limit for providing the mandatory training and education to January 1, 2021.  However, this new law still requires new nonsupervisory employees to be provided the mandatory training within six months of hire, and new supervisory employees to be provided the training within six months of becoming a supervisor.  The new law requires the training to be provided once every two years.

Other important provisions of this new law include:

  • Employers who provided mandatory sexual harassment prevention training and education in 2019 do not have to provide it again until 2021, and every two years thereafter.
  • The training may be completed by employees individually or as part of a group presentation, and may be completed in shorter segments, as long as the applicable hourly total requirement is met.
  • Employers are defined as any person or company regularly employing five or more persons or regularly receiving the services of five or more contract workers, or any person acting as an agent of an employer, directly or indirectly, the state, or any political or civil subdivision of the state, and cities.
  • Employers must also include prevention of abusive conduct as a component of the training and education.  “Abusive conduct” means conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests.
  • Employers must also provide training inclusive of harassment based on gender identity, gender expression, and sexual orientation as a component of the sexual harassment prevention training and education. The training must include practical examples inclusive of harassment based on gender identity, gender expression, and sexual orientation, and must be presented by trainers or educators with knowledge and expertise in those areas.
  • Beginning January 1, 2020, for seasonal, temporary, or other employees that are hired to work for less than six months, an employer shall provide the mandatory training within 30 calendar days after the hire date or within 100 hours worked, whichever occurs first.
  • If a temporary employee is employed by a temporary services employer to perform services for clients, the training shall be provided by the temporary services employer, not the client.
  • Different rules apply to agricultural workers.
  • Employers may develop their own training, may send their employees to a live or web based training provided by a trainer who meets the required qualifications, or may direct employees to view the online training course that the Department of Fair Employment and Housing (DFEH) will develop and make available on its internet website. The DFEH states the training will be available “by late 2019.”

You can see the full text of the new law at  While employers have more time to comply with the mandatory sexual harassment prevention education and training requirements, it is important to accurately calendar training deadlines for all new hires, new supervisors, and other employees to ensure compliance with the law.

Can Accrued Vacation Time Requests Be Denied?

Question:  I offer my full time employees paid vacation benefits.  Some of my employees have asked for vacation during the upcoming U.S. Open.  As a restaurant, I will need all hands on deck during this busy time.  Can I deny vacation requests even when an employee has accrued vacation?

Answer:  Yes.

California employers are not required to provide paid vacation or paid-time-off (PTO) under California law, but if they choose to do so there are rules that must be followed.  It is important to have a written vacation pay policy so your employees understand the rules.  You may place reasonable restrictions on the use of paid vacation time, and many businesses in the hospitality and retail industries restrict their employees from using vacation time during the busy tourist season and special events.  Conversely, employers may require employees to take vacation time off during specified periods.  It is important to let employees know about these restrictions ahead of time, and to administer the policy fairly.

Your vacation policy can state that an employee has to work for you for a specific period of time before vacation benefits begin to accrue. In California, employers cannot adopt a “use it or lose it” vacation policy. Earned vacation time is considered wages, and vacation time is earned as work is performed. For example, if an employee is entitled to 10 days of vacation per year, after six months of work the employee will have earned five days of vacation. Vacation pay accrues as it is earned and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination.

It is also important to define how vacation time will be accrued.  For example, an employer's vacation plan may provide for the earning of vacation benefits on a daily or weekly basis, each pay period, or some other periodic basis. Many employers use a pay period method of accrual.  While employers are not required to list employees’ accrued vacation on the employees’ paystubs, they are required to keep accurate records of accrual and use of vacation time.

In order to encourage employees to take time off for rest and relaxation, and to control vacation accrual liability, many employers place a cap on the number of vacation hours an employee can accrue.  In California, employers must provide employees a “reasonable” amount of time to use their accrued vacation, so most vacation caps are 2 times the employee’s annual accrual.  For example, if an employee accrues 80 hours of vacation time each year, that employee’s vacation cap would be 160 hours.  If the employee’s accrual reached the cap, accrual would stop until the employee used some vacation time to bring the accrued vacation under the 160 hour cap.  Another option is to cash out unused accrued vacation time at the end of the year.

Employers can require employees to follow a procedure to request vacation time off.  For business planning purposes, most employers require employees to request vacation time in writing at least 30 days in advance.  Your policy can also allow employees to take vacation time in full or partial day increments.

When the employment relationship ends, remember that all accrued but unused vacation or PTO must be paid at the employee’s final rate of pay and included in the employee’s final paycheck unless otherwise stipulated by a collective bargaining agreement.


Workplace Implications of Emerging Consumer Privacy Laws

Question:  Someone told me that California has a new privacy law.  What does this mean for my business?

Answer: There is an increasing belief that we have lost control of our personal information. In 2018, California passed a sweeping consumer privacy law to combat recent privacy scandals, including the Cambridge Analytica incident involving Facebook user data.  The new law is complex and its language creates many ambiguities for regulators, businesses, and consumers.  Although lawmakers are still attempting to refine and clarify the law, its fast-approaching January 1, 2020, effective date makes it important to understand the law as it is currently written.

The new law—the California Consumer Privacy Act (“CCPA”)—affords California residents an array of new rights, starting with the right to be informed about what kinds of personal data companies have collected and why it was collected. Among other new protections, the law stipulates that consumers have the right to delete their data, say no to the sale of their personal information, be free from discrimination, and seek legal action against businesses that violate these rights.

At first blush, it appears the CCPA only protects the privacy of consumers.  However, the law’s broad definition of “consumer” includes employees as long as they are natural persons who are California residents because they are either domiciled in California for a temporary or transitory purpose or are in California for more than a temporary or transitory purpose.  While the application of the CCPA to employee data remains an open question, employers should be ready to face the law’s direct implications for employment-related data.

With some limited exceptions, employers must comply with the CCPA if they satisfy at least one of the following three criteria: (1) have annual gross revenues in excess of $25 million; (2) derive at least half of their annual revenues from selling consumers’ personal information; and (3) handle, buy, share, or sell personal information belonging to at least 50,000 California residents annually.  The law clearly reaches large employers, but even small businesses might find themselves covered by the CCPA if they have significant amounts of data.

For example, under the CCPA, employees’ performance reviews, compensation information, and most human resource records may constitute “personal information.” Non-employee California consumers (as defined under CCPA), including customers or clients, will also likely count towards the 50,000 threshold that mandates compliance.  In addition, because “personal information” as defined under the CCPA includes IP address and device identification numbers captured by operating an application or website, the 50,000 number could be relatively easily achieved by many employers.  If an employer finds itself subject to the CCPA, its employees and consumers will have numerous rights under the CCPA.

Still, it is not clear if the CCPA is intended to protect employment-related data, and there have been efforts to amend and clarify the legislation before it goes into effect on January 1, 2020.  One such amendment is Assembly Bill 25, which would specifically exclude employees and job applicants from the definition of “consumer” under the CCPA.  In addition, the Attorney General is working on regulations to implement the CCPA that may clarify the reach of the CCPA.

While the proposed amendment and expected regulations may alleviate some uncertainty, employers should consider proactively reviewing their privacy policies and practices and watching for updates on regulations that may make the CCPA applicable to employee data.

For the 4th Year in a Row, Fenton & Keller Named County’s Top Law Firm in Monterey County Weekly Reader Polls

In its March 28, 2019 edition, the Monterey County Weekly announced that its readers have once again voted Fenton & Keller the Best Law Firm in Monterey County. This is the fourth consecutive year Fenton & Keller has received this honor.

All of us at Fenton & Keller would like to express our gratitude to the readers of Monterey County Weekly for honoring and expressing their confidence in our firm in this way. We would also like to thank our clients for trusting in us and allowing us to serve their changing legal needs for over 50 years!