By Melanie Balestra, NP, Esq.

Under AB 5 there is the three-factor ABC test, California courts determine whether a worker is an employee or an independent contractor by considering whether: (A) “[t]he worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract … and in fact”; (B) “[t]he worker performs work that is outside the usual course of the hiring entity’s business”; and (C) “[t]he worker is customarily engaged in an independently established trade, occupation, or business of the same nature” as the work performed for the hiring entity. If a company is unable to demonstrate any of these three factors, then the worker is an employee, subject to a list of exceptions.  There were only a few exemptions such as physicians, accountants, lawyers.

AB 2557 was enacted to expand the list of exemptions.  If an individual acting as a sole proprietor, or a business entity formed a partnership, limited liability company, limited liability partnership or corporation, contracts to provide services to another such business or public agency or quasi-public corporation, the status shall be governed by Borello (a case decided by the California supreme court), if the following criteria are satisfied:  

1. Business service provider is free from control and direction of contracting business entity;
2. Business service provider is providing services directly to the contracting business rather than customers of the business;
3. Contract with the business is in writing and specifies payment amount and payment due date;
4. If work is performed in jurisdiction that requires the business service provider to have a business license or business tax registration;
5. Business service provider maintains a business location;
6. Business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed;
7. Business service provider can contract with other business to provide the same or similar services and maintain a clientele without restrictions from the hiring entity;
8. Business service provider advertises and holds itself out to the public as available to provide the same or similar services;
9. Consistent with nature of the work, the business service provider provides its own tools, vehicles and equipment to perform services;
10. Business provider negotiates own rates;
11. Business provider sets its own hours and location of work; and
12. Business service provider is not performing the type of work for which a license from the Contractors State License Board is required.

Although exemptions are listed in both bills, nurse practitioners are not an exemption named. However, it is arguable that nurse practitioners provide professional services and therefore can be considered independent contractors if they pass the Borello test (California Supreme Court decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.ed 341). This test is as follows: A person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied (note, this may sound similar to the IRS requirements):

1. Whether the worker performing services holds themselves out as being engaged in an occupation or business distinct from that of the employer;
2. Whether the work is a regular or integral part of the employer’s business;
3. Whether the employer or the worker supplies the instrumentalities, tools, and the place for the worker doing the work;
4. Whether the worker has invested in the business, such as in the equipment or materials required by their task;
5. Whether the service provided requires a special skill;
6. The kind of occupation, and whether the work is usually done under the direction of the employer or by a specialist without supervision;
7. The worker’s opportunity for profit or loss depending on their managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job;
11. Whether the worker hires their own employees;
12. Whether the employer has a right to fire at will or whether a termination gives rise to an action for breach of contract; and
13. Whether or not the worker and the potential employer believe they are creating an employer-employee relationship (this may be relevant, but the legal determination of employment status is not based on whether the parties believe they have an employer-employee relationship).

Borello is referred to as a “multifactor” test because it requires consideration of all potentially relevant facts – no single factor controls the determination. Courts have emphasized different factors in the multifactor test depending on the circumstances. For example, where the employer does not control the work details, an employer-employee relationship may be found if (1) the employer retains control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative, Inc. v. Workers’ Compensation Appeals Board (1991) 226 Cal.App.3d 1288.)

What does all this mean? Before hiring on as an independent contractor as an individual or professional corporation or before hiring someone as an independent contractor, contact an attorney first to discuss your particular situation. Unfortunately, nurse practitioners are not specifically named under exemptions, but one has to look at the entire requirements for exemption.