Is the Handyman An Employee? AB5 May Increase HOA Payrolls in 2020

Traditionally, many businesses often hire part-time or occasional workers and characterized them as “independent contractors.” The IRS and State Franchise Tax Board had guidelines to help determine who was an employee and who could fairly be called an independent contractor. There were many factors which played a role in that characterization.

HOAs often hire persons they considered “independent contractors” to perform specific maintenance, repair, or other routine tasks. This avoided payroll tax withholding and other legal obligations.

All that began to change in 2018 with a California Supreme Court case called Dynamex v. Superior Court, in which the traditional test of employment vs. independent contractor was replaced with a simple 3-part test, often called the “ABC” test. That ruling was incorporated in Assembly Bill (AB) 5, which was quickly signed by the Governor after passing the Legislature. AB 5 creates a new Labor Code Section 2750.3 and affects any hirer, including HOAs, using “independent contractors” which might be reclassified as “employees.” This new statute adopts the “ABC” test, which determines a worker as an independent contractor if: A) The hirer actually and contractually does not control or direct the person in the course of their work; B) The work performed is outside the hirer’s normal business; and C) The worker also normally and independently performs that work for others. If the hired person meets all of those three requirements, they can be treated as an independent contractor. As before, the element of control over how the person performs their work is key.

Some HOA service providers are expressly exempted from the law, such as attorneys, architects, engineers, and accountants. The more concerning area for associations is hired persons working on the HOA property and paid by the HOA.

One example of an independent contractor would be the plumber who is called to come fix a leak. The plumber is not supervised or told how to perform the repair. The plumber normally works for others as well, and the HOA’s business is not plumbing.

On the other hand, a less clear answer might apply to maintenance or janitorial workers paid by the HOA. Such workers often are given direction by the manager or board. Furthermore, since the HOA’s job is to maintain the common area, isn’t general property maintenance and cleaning part of the HOA’s “business?”

The conversion of workers to employee status may create sick leave and other obligations for the HOA, including payroll withholding duties. An employee might try to contest their termination, or allege discrimination. Also, employees are subject to Fair Employment and wage and hour laws. Associations should obtain advice from their insurance broker regarding workers compensation coverage.

There will be public resources educating HOAs and managers on the difference between employee vs. independent contractor status. The California Department of Industrial Relations is developing a pertinent web page, but it unfortunately is not ready at present time (www.dir.ca.gov/dlse/faq_independentcontractor.htm). The California Chamber of Commerce has information available at www.calchamber.com.

Managers and their boards should be aware of the simpler standard and avoid erroneously calling workers “independent contractors” if the law does not support that status. Also, remember that personnel (employees) discussions are for closed session, while independent contractors are vendors and should be discussed in open session.

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.