The California Supreme Court adopted new rules on the differences between independent contractors and employees which impacts every industry, especially insurance. In the Dynamex v. Superior Court case filed on April 30, the Court established new rules for determining if a person qualifies as an independent contractor or not. The new restrictions will reduce the total number of independent contractors in the state of California.

The three new rules required to remain or become an independent contractor are as follows:

Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?

Part B: Does the worker perform work that is outside the usual course of the hiring entity’s business?

Part C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?

More information about the definitions of these parts are more thoroughly outlined in this document: https://member.iiabcal.org/Portals/1/Images/Advocacy/California_Supreme_Court_Dynamex_Decision.pdf?timestamp=1525918702108

Insurance companies typically hire producers who are classified under the independent contractor title, however with the adoption of the three parts above, this may change and producers will need to be treated as employees. A big factor in this change is the ability for a company to control a person; the more control the company needs to have, the more a person should be classified as an employee.

An example of how the three parts work together is as follows:

An insurance company could hired someone to fix a leak in their bathrooms. The plumber would need to have their own business, by choice, and since it is outside of the normal scope of business of providing insurance, would be an acceptable hire. The plumber would also have to be in the business of providing this service to other companies and people.

HR Ledger is encouraging all insurance agencies to consult with their legal counsel to determine the correct classification of any independent contractors and if any immediate action needs to take place with their current producer agreements.

If you have any questions on who you should consult, please refer back to this article we wrote earlier this year: https://www.hrledger.com/client-interest/hire-hr-consultant-vs-employment-attorney/