SACRAMENTO, CA, Jan. 31, 2019 — Legislation has been introduced, at the request of IIABCal, that would create a statutory exemption for insurance agents and brokers to new rules announced by the California Supreme Court last year that severely restrict the use of independent contractors in California.
AB 233, co-sponsored by Assemblyman Tom Daly (D-Anaheim) and Ken Cooley (D-Sacramento), would permit insurance agents and brokers to elect whether they wish to work as employees or independent contractors, provided certain requirements were satisfied. Daly is the chairman of the Assembly Insurance Committee; Cooley is one of its most respected members.
Historically, administrative agencies and courts have developed a variety of rules for distinguishing employees from independent contractors. While the exact scope of those rules varied from one context to the next, all were focused at their core on the extent to which an employer did or could “control” the actions of the worker; the greater the level of control, the more likely the worker was to be regarded as an employee.
In Dynamex, the Supreme Court effectively threw out the old rules and adopted a new “ABC test.” To qualify as an independent contractor, an employer must now prove all of the following:
A) That the worker is free from the control and direction of the hirer in the performance of the work; and
B) That the worker performs work outside the usual course of the hiring entity’s business; and
C) That the worker is customarily engaged in an independently-established trade, occupation or business of the same nature as the work being performed for the hiring entity.
For insurance agencies and brokerages, the second prong of the new test is the biggest change, and the most difficult to meet: An independent contractor must be doing work that is OUTSIDE the usual course of the hiring entity’s work—which in practical effect means that agencies can no longer hire producers or CSRs or similar agency personnel as independent contractors.
Other states have enacted rules similar to the ABC test, and many of those states have seen fit to enact exemptions for the insurance industry, said IIABCal General Counsel Steve Young. “Our new bill, AB 233, is patterned after the laws in those states and has been drafted narrowly to permit insurers and producers with as much flexibility as possible to meet their customers’ needs.”
The bill would enact new Section 49 to the California Insurance Code and would permit producers to work, at their election, either as an employee or as an independent contractor. In order to be an independent contractor, the following conditions would need to be satisfied:
(1) The parties have voluntarily entered into the agreement.
(2) The worker is classified as an independent contractor.
(3) Each party has the right to terminate the contract upon notice to the other party.
(4) The worker may work outside the hirer’s physical place of business.
(5) The worker is responsible for the payment of necessary expenditures or losses incurred as a direct result of discharging the worker’s responsibilities under the agreement.
(6) The consideration provided by the hirer to the worker is in the form of commissions, fees, or incentives, or all of these.
(7) The worker is responsible for the payment of all applicable taxes on compensation earned.
Here is the text of IIABCal’s bill:
CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION
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Introduced by Assembly Members Cooley and Daly
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January17,2019
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An act to add Section 49 to the Insurance Code, relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 233, as introduced, Cooley. Insurance: independent contractors.
Existing law authorizes the Department of Insurance to issue a license to a person to transact insurance in various capacities, including as an insurance agent or broker, a surplus line broker, or a life and disability insurance analyst. Existing law generally regulates written agency or brokerage contracts between insurers and broker-agents, including the terms upon which an agency or brokerage contract may be terminated and the commission payable to a broker-agent.
Existing case law creates a presumption that a worker who performs services for a hirer is an employee. Existing case law requires a 3-part test to establish that a worker is an independent contractor, including that the worker is free from the control and direction of the hirer in performing the work.
This bill would clarify the application of the case law described above to persons licensed by the department to transact insurance in specified capacities by providing that those persons are not employees when they have entered into a written agreement with an insurer or organizational licensee that includes specified provisions, including that the worker is classified as an independent contractor, that each party has the right to terminate the agreement upon notice to the other party, and that the worker is responsible for the payment of necessary expenditures and applicable taxes. The bill would allow the parties to the agreement to classify the worker as either an employee or an independent contractor, but would prohibit a worker from being classified as an independent contractor unless the agreement contains the provisions described above.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: NO Local Program: NO
Bill Text
The people of the State of California do enact as follows:
SECTION 1.
Section 49 is added to the Insurance Code, to read:
49.
(a) The term “employee,” for purposes of California wage orders of the Industrial Welfare Commission, the Labor Code, the Unemployment Insurance Code, the Division of Workers’ Compensation, or any other purpose related to the characterization of employees and independent contractors under statute or common law, shall not include a person or organization who is licensed by the department pursuant to Chapter 5 (commencing with Section 1621), Chapter 6 (commencing with Section 1760), and Chapter 8 (commencing with Section 1831) of Part 2 of Division 1, and who has entered into a written agreement with an insurer or organizational licensee that includes all of the following provisions:
(1) The parties have voluntarily entered into the agreement.
(2) The worker is classified as an independent contractor.
(3) Each party has the right to terminate the contract upon notice to the other party.
(4) The worker may work outside the hirer’s physical place of business.
(5) The worker is responsible for the payment of necessary expenditures or losses incurred as a direct result of discharging the worker’s responsibilities under the agreement.
(6) The consideration provided by the hirer to the worker is in the form of commissions, fees, or incentives, or all of these.
(7) The worker is responsible for the payment of all applicable taxes on compensation earned.
(b) The parties to the agreement may characterize the worker as an employee or an independent contractor, at the discretion of the parties, except that a worker may not be classified as an independent contractor unless the conditions in subdivision (a) are met.