New Labor Code on Independent Contractors Affecting Private Patrol Operators and Private Investigators

On January 1, 2020, California codified the decision from the California Supreme Court case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018).  This case was a landmark decision because it shifts the burden of the worker proving he/she was being treated as an employee,

resulting in the prevailing worker being entitled to a benefit bestowed by labor codes favorable to employees. The burden is now on the employer having to prove the worker was not an employee, but an independent contractor.

I commonly train private investigators and private patrol operators. AB No. 5 has no bearing on private investigators since they are excluded by the new law (CA Labor Code 2750.3. (b) (3)). But, you’re not off the hook yet Private Investigators. Read towards the bottom.

The way the law is written, Governor Gavin Newsom (D) and the bill’s author, State Senator Lorena Gonzalez (D), did not exclude private patrol operators and for this reason, patrol operators must be acquainted with AB No. 5.

Labor Code 2750.3. (a)(1) was one of the codes created by AB No. 5. This law says that an employer (such as a private patrol operator) must only classify a worker (known below as a “person.”) as an independent contractor if:

(A) The person 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) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

In the private security industry, it is a common practice for private patrol operators to pay “under the table” to security officers for large events and for this reason, AB No. 5 will affect this practice (and any practice of misclassifying a worker as an independent contractor). Paying under the table, refers to paying a worker cash after the assignment or anytime thereafter. Although it’s not unlawful to pay a worker cash, most of the time when a worker is paid under the table, the employer classifies the worker as an independent contractor to avoid payroll costs, insurance costs, benefit obligations, and training requirements.  Additionally, private patrol operators who do not have a payroll structure set up, are more inclined to unlawfully classify workers as independent contractors. Penalties for misclassifying workers include, but are not limited to, attorney fees and workers’ compensation fines, as well as paying back with interest, Social Security Admin. penalties, Medicare penalties, and the Employment Development penalties for unpaid unemployment insurance.

If you are a private patrol operator and need to hire a security officer worker as an independent contractor make sure that (1) the worker has his/her own private patrol operator license and (2) the worker does not fall within Labor Code 2750.3. (a)(1) or other relevant laws.

Now for you Private Investigators. Even though AB No. 5 does not apply to you, a case law does. To appropriately classify a worker, you must follow the standards set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello). According to Borello (as quoted by the Department of Industrial Relations Division of Labor Standards Enforcement, an individual will be considered an employee where the employer exercises all necessary control by direct or indirect means over the work details of the individual.  

In addition, the following factors are to be considered in determining an individual’s status as an independent contractor:

1. The individual performs services in an occupation or business distinct from that of the principal;

2. The work performed is not part of the regular business of the principal;

3. The individual supplies his/her own instrumentalities, tools and the work place;

4. The individual has made a significant investment in the equipment or materials required for his or her task(s);

5. The individual's services require a unique skill in a particular occupation;

6. The individual's occupation in the locality is usually done by a specialist without                              supervision;

7. The individual’s opportunity for profit or loss depends on his/her own managerial skill;

8. The time for which the services are to be performed is reasonably limited to the task(s) for which the individual was hired;

9. The working relationship between the individual and the employer is reflective of the time allotted to perform the task(s) for which the individual was hired;

10. The method of payment is time certain or project specific;

11. The parties do not believe they are creating an employer-employee relationship.

12. The individual has the right to control and discretion as to the manner of performance of the contract for services but not the means by which the work is accomplished; (Labor Code Section 2750.5)

13. The individual is customarily engaged in an independently established business; (Labor Code Section 2750.5)

14. The individual's independent contractor status is bona fide and not a subterfuge to avoid employee status; (Labor Code Section 2750.5)

15. The individual has a substantial investment in the business other than personal services; (Labor Code Section 2750.5)

16. The individual holds him/herself out to be in business for him/herself; (Labor Code Section 2750.5)

17. The individual bargains for a contract to complete a specific project for compensation by project rather than by time; (Labor Code Section 2750.5)

18. The individual has control over the time and place the work is performed; (Labor Code Section 2750.5)

19. The individual hires his/her own employees; (Labor Code Section 2750.5)

20. The individual holds a license to perform the work; (Labor Code Section 2750.5)

21. The relationship is not severable or terminable at will by the principal but gives rise to an action for breach of contract. (Labor Code Section 2750.5)

Disclaimer: I am not an attorney and no information discussed here cannot be construed as legal or professional advice. I am not associated with the Bureau of Security and Investigative Services. You should not make any financial, professional, or legal decisions based on the information in this discussion without the advice of a licensed attorney in your jurisdiction. The information may be incorrect. Engage at your own risk.

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Shaun E. Sundahl, Author of The Legal Investigator and the Private Patrol Operator.