Despite what you may have heard, the passage of AB5 will not cause the sky to fall.
California’s independent contractor bill, Assembly Bill 5, was described in media reports as an effort to regulate the gig economy, more specifically Uber and Lyft drivers. It actually impacts many, many more workers than that. But it doesn’t change anything for master’s-level mental health professionals in the state. The change that matters for us happened more than a year ago, and most employers have already adapted to it.
Quick history: In a court case last year (formally Dynamex Operations West, Inc. v. Superior Court of Los Angeles, or informally, Dynamex), California’s supreme court dramatically rewrote the rules for who can work as an independent contractor. The new requirements are commonly referred to as the “ABC” test. Under Dynamex, all of these components must be met for someone in California to work as an independent contractor:
(A) The worker is free from the control and direction of the hiring entity in the performance of their work, both under the terms of the contract and in actuality
(B) The worker performs work that is outside the usual course of business for the hiring entity
(C) The worker is customarily engaged in an independent occupation or business of the same nature as the work they are contracted to perform
For therapists working under 1099s (independent contractor agreements), there was immediately a lot of concern. The main issue was criterion B — could therapists no longer work as independent contractors in any place that provides therapy?
Therapists expressed specific worry about three common kinds of independent contracts. Some proved to be greater actual problems than others:
Therapists in-network with insurance. I’m no lawyer, but these therapists don’t seem to be impacted by Dynamex. Insurance companies are typically in the business of paying for health care, not providing it. So therapists who were previously in-network and paid under 1099s have had, to the best of my knowledge, no problems continuing. They can easily demonstrate that they meet all three criteria in the ABC test.
Contract supervisors. It’s more of a gray area for those therapists contracted to provide supervision for a few hours a week for an agency, hospital, or other employer. If that employer has other supervisors on W-2 employment, it would be tough for them to argue that supervision is not part of their “usual course of business.” But if they don’t, they could make that argument, and it could be a winning one, though to my knowledge it hasn’t yet been tested.
Group practices. This is where most of the alarm came from. As with beauty salons, a lot of group practices had been structured where every service provider in the practice was under a 1099. Group practices quickly realized that these agreements would likely fail the ABC test, as the group may have a tough time arguing that they aren’t in the business of providing mental health care.
And here’s the thing about those group practices. From what I’ve heard (admittedly anecdotal, as I have yet to see any hard data), they largely switched over to W-2 employment arrangements. In some cases they had to make changes in their pay structure, as they would now be paying employer taxes and handling a number of other employer responsibilities that aren’t part of 1099 agreements. But they did it. And the sky didn’t fall.
Remember that the Dynamex case was now more than a year ago. AB5 was simply an effort to codify that ruling in statute — and, for many industries, an opportunity to ask for an exemption from the new ABC test. Psychologists ultimately received such an exemption, taking them back to the pre-Dynamex rules for independent contractors. Counselors, MFTs, and social workers received no such exemption, leaving them subject to the ABC test from Dynamex.
The failure to receive an exemption has been framed by some as a disaster for MFTs and other master’s-level therapists. I’ll be honest: I don’t see it. Moving employees onto W-2 employment grants them better workplace protections. To whatever degree very-part-time therapist workers are negatively impacted by issues like reduced schedule flexibility under W-2 employment, there’s a counter-argument to be made that they come out ahead, with new benefits like paid sick leave. As noted above, W-2 employees also do not have to pay employer taxes, while 1099 contractors do.
In any event, this is not the last we will hear of the issue. Uber and Lyft have said they will pursue a ballot initiative in 2020 that would create a third category of worker, somewhere between an independent contractor and a W-2 employee. And many industries that wanted exemptions in AB5 didn’t get them, suggesting that they will continue their efforts through new legislation next year. So if you really want your profession to go back to the pre-Dynamex rules, it may yet happen.
But in the meantime, nothing changes for employment of master’s-level therapists on January 1, 2020. The world of employment for master’s-level therapists has its problems, to be sure. But the change that impacted the master’s-level professions’ ability to work as independent contractors occurred on April 30, 2018. AB5 just keeps the new status quo. And most of us didn’t feel a thing.