Everything Old is New Again:
What You Should Know About Changes to California Independent Contractor Laws 

J. Sean Dumm, Esq.; The Law Offices of J. Sean Dumm, APC

In my representation of dentist clients in recent years, the greatest controversies and ambiguities have concerned whether an associate dentist could provide services in the capacity of an independent contractor given recent changes in case law. This inquiry was posed by associates and practice owners alike as it is often to the advantage to both parties that the associate relationship be regarded as an independent contractor.  For the hiring party, independent contractor status results in the minimization of employer obligations and payroll taxes.  For the associate, independent contractor status can represent an opportunity to maximize business and financial planning through an established professional corporation.  Among the many laws that took effect on January 1, we are confronted by a new section of the Labor Code that re-defines the test for independent contractor status for dentists.

The “Old Test”

For nearly thirty years, the California Labor Commissioner and Employment Development Department (EDD) relied upon a multi-factoral test established in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (“Borello”) to determine whether a worker would be considered an employee. Borello set forth a series of factors predominantly focusing on whether the party receiving a service “has the right to control the manner and means of accomplishing the result desired.” Id. at p. 350. During this time many dentists and even hygienists performed work in the capacity of an independent contractor.  

Uncertain Times for Dentist Contractors

In April 2018, the California Supreme Court issued its opinion in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, (2018) 4 Cal. 5th 903 (“Dynamex”) increasing the scrutiny of workers compensated as independent contractors.  Dynamex, a case about the employment status of delivery drivers, established a presumption that a worker who performs services for hire shall be considered an employee for purposes of wage and benefits claims unless the hiring party can establish that (A) that the worker is free of control and direction of the hiring party in the performance of the work; (B) that the worker is performing work outside the usual course of the hiring party’s business and (C) that the worker is engaged in an independently established trade, occupation or business.  

While the Dynamex ruling was viewed as having a widespread impact on the employment status of workers engaged in the so called “gig economy”, much doubt was created regarding whether an associate dentist could be classified as an independent contractor.  Even though a dentist exercises autonomy in diagnosis and treatment as a highly skilled and licensed professional, significant concern existed that an associate dentist would not satisfy the “B” test as the associate dentist’s work (the practice of dentistry) is the ordinary occupation of the contracting dental practice.  As a result, many practices formerly contracting dentists transitioned their general dentists to an employee status to avoid the risk of liability for unpaid employment taxes, penalties, wage and hour claims for a misclassified employee. 

Assembly Bill 5: New Changes to the Labor Code

As of January 1, 2020, the recently enacted Assembly Bill 5 (AB5) establishes a new section of the Labor Code (Section 2750.3) broadening the application of the ABC test of Dynamex beyond wages and benefits; making it difficult for many companies to classify workers in California as independent contractors.  Further, Labor Code Section 2750.3 directs that any company passing the ABC test must then satisfy the factors set forth under Borello before its worker can be classified as an independent contractor. This statutory enactment is expected to increase the compensation of hundreds of thousands of California workers (via minimum wage, mandatory sick leave, overtime and meal and rest breaks) but also to expand worker eligibility for various benefits such as workers compensation coverage (beginning July 1, 2020) and unemployment insurance.  It follows that many companies will now have exponentially greater payroll, tax, EDD and insurance obligations.

Exceptions for Dentists

Fortunately, as the result of lobbying efforts of the California Dental Association, independent contractor status for a dentist may still be established.  Labor Code Section 2750.3 (b)(2) expressly states that the holding in Dynamex and its codification under the Labor Code shall not apply to dentists.  Instead, the statute states “the determination of employee or independent contractor status for [dentists] shall be governed by Borello.” The same cannot be said for dental hygienists and other dental office workers providing services to a dental practice that are subject both to Borello and the ABC test of Dynamex and should be classified and compensated as employees.

Application of the “New” Old Test

Our takeaway is that the Borello factors along with relevant Labor Code sections will dictate whether an associate dentist may be regarded as an independent contractor. We must be mindful that any scrutiny of an associate dentist will begin with the presumption that the dentist is an employee and closely examine the factors set forth in Borello and the Labor Code.  Dentists should further anticipate increased scrutiny of the Borello factors by the various agencies applying new Labor Code section. For this reason, it is wise to consult with your legal and accounting professionals regarding whether an employment or independent contractor relationship is ideal for you or your dental practice.  Dentists and Practices desiring to establish or maintain an independent contractor relationship should seek to establish both a well written contract and a working relationship with the associate dentist that both contemplates and models the Borello factors that favor an independent contractor classification.    

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Sean is an Orange County based attorney emphasizing his practice in the representation of California dentists in practice transitions, corporations, partnerships and associate/independent contractor agreements.  He may be reached at Sean@jsdlawoffice.com; (949) 276-5095 

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