On Sept. 25, one week after a new labor bill was signed into law in California, the House Education and Labor Committee approved H.R. 2474, “the Protecting the Right to Organize Act,” by a party-line vote of 26-21. The federal bill contains controversial provisions of the California law that would effectively ban nearly all categories of independent contractors but, most significantly, left out the extensive list of exemptions found in the state law, including an exemption for “licensed insurance agents.”    

H.R. 2474 would codify and nationalize the strict definition of independent contractors based on the California Supreme Court’s landmark decision issued in 2018 in the matter of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In its decision, the court embraced a standard presumption that all workers are employees instead of independent contractors unless a worker meets all the criteria in a newly adopted “ABC test.”

H.R. 2474 incorporates the ABC test’s provisions by requiring workers classified as independent contractors to be “free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact;” perform service “outside the usual course of the business of the employer;” and be “customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.” The Dynamex decision brought about major uncertainty as to the classification of workers as it conflicts with other long-standing case law and is retroactive.

H.R. 2474 would make it very difficult for individuals to be classified as independent contractors forcing employers to pay Social Security, payroll, state employment taxes and unemployment and worker’s compensation insurance, as well as comply with other state and federal statutes governing wage, hour, and working conditions for employees.

Without an exemption for insurance agents as contained in the California law, the provisions in H.R. 2474 could affect agencies as employers and insurance agents and brokers as individuals who may value the independence and flexibility of working as independent contractors. 

Heather Eilers-Bowser is Big “I” counsel, federal government affairs.