California is set to remake the so-called “gig-economy,” passing legislation Tuesday evening that would codify the “ABC” test, set forth to determine whether a worker is an employee or can be classified as an independent contractor. But fears that the legislation could upend the real estate industry appear unfounded for now with an exemption written into the law.

The bill passed in the California State Senate on Tuesday, and it still needs to pass again in the Assembly — which it should easily, considering it was passed by a 53-11 vote originally in the Assembly during the last legislative session — and will await signature by Governor Gavin Newsom, who has signaled support for the bill in an opinion piece published in the Sacramento Bee.

“Our AB5 to stop the misclassification of nearly a million misclassified California workers so they are provided a minimum wage, benefits and workplace rights has passed the Senate today with 29 votes,” Assemblywoman Lorena Gonzalez, the author of the original bill wrote on Twitter. “It now heads to the Assembly.”

The bill essentially codifies the state Supreme Court’s ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In that ruling, the court laid out an “ABC” test for determining whether a worker could be considered an independent contractor. A worker is considered an independent contractor if they pass each of the three standards:

  • (A) that 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) that the worker performs work that is outside the usual course of the hiring entity’s business;
  • (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

But the bill, as written, exempts a number of categories, including real estate as well as licensed insurance agents, securities brokers or investment advisers, commercial fisherman and cosmetology workers.

Those workers will instead be subject to the “Borello,” or “economic realities test.”

“In applying the economic realities test, the most significant factor to be considered is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed,” guidance from the California Department of Industrial relations reads.

Independent contractor status has been a hot topic in the state for real estate workers. Both Purplebricks and Owners.com have faced lawsuits over the alleged misclassification of workers.

Legal groups have even allegedly targeted real estate agents at different brokerages to enter into a class-action lawsuit over independent contractor status, causing the California Association of Realtors to warn to stay away from the firms “trying to create litigation.”

The passage of the bill in California — which is expected to have the greatest impact on companies that rely on so-called gig economy workers like Uber, Lyft, DoorDash and others — drew praise from state labor organizations.

California is the first state to move toward passing the worker classification bill, but it could have a ripple effect to states where Democrats hold power in all three legislative houses like New York State. The New York State AFL-CIO has been advocating for a similar reform.

“Building on the historic success of our brothers and sisters in California, here in New York State we will not rest until app workers are afforded the same rights as other hardworking men and women, including the ability to join together to form a union,” the union said, in a statement.

Email Patrick Kearns

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