Dental and Medical Counsel Blog

Assembly Bill 5: The Impact on Independent Contracting in California

September 16, 2023
Assembly Bill 5

Assembly Bill 5 (AB 5), signed into law on September 18, 2019, by Governor Gavin Newsom, has had a significant impact on the classification of workers as independent contractors in California. This blog explores the details of AB 5, which codified the "ABC test" established by the California Supreme Court's Dynamex decision. We will examine how this new law affects physical therapists and discuss potential exceptions, enforcement risks, and the broader implications for the gig economy.

Understanding the ABC Test: The ABC test, as outlined in Dynamex, creates a presumption that a worker is an employee unless the employer can demonstrate that the worker meets all three criteria:

  • The worker is free from the control and direction of the company in performing work, both practically and in the contractual agreement between the parties. B. The work performed by the worker is outside the usual course of the company's business. C. The worker is engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.

Challenges for Physical Therapist Contractors: While many independent contractor physical therapists meet Section A of the ABC test by working for multiple practices, Sections B and C present challenges.

  • If a contracting physical therapist provides patient care directly for a physical therapy practice, they fail Section B because they are working within the usual course of the company's business. Section C also poses difficulties, as the contractor must have their own separate practice to contract with another physical therapist.

Exceptions to AB 5: AB 5 includes several exceptions, such as physicians, dentists, podiatrists, veterinarians, and psychologists. However, physical therapists are not explicitly included in the list.

  • Therefore, physical therapists must adhere to the ABC test unless they meet an exception that falls under the Borello test. The Borello test focuses on the control exerted by the company over the worker's means and manner of performing the job. However, the Borello test is unlikely to apply to physical therapists.

The Business-to-Business Exception: AB 5 provides an exception known as the "business-to-business exception" for service providers operating a business that provides services to another business.

  • To qualify for this exception, specific criteria must be met. However, this exception does not seem to apply to physical therapists since they provide services directly to the patients/customers of the contracting business, rather than the business itself.

Impact of AB 5 and Enforcement Risks: AB 5 and the ABC test make it easier for workers to claim misclassification as independent contractors.

  • Employers who misclassify workers as independent contractors may face penalties for various violations, including failure to reimburse necessary business expenses, failure to provide accurate wage statements, failure to pay unemployment insurance tax, and failure to provide workers' compensation insurance. The penalties for these violations can range from $5,000 to $15,000, with higher penalties for patterns of willful noncompliance.

The California Attorney General and certain city attorneys can pursue injunctions against non-compliant companies, and private legal actions can be based on Labor Code violations through the Private Attorney General Act (PAGA). This means that workers can bring legal claims on behalf of themselves and others who have been similarly misclassified. The potential for financial liability and reputational damage due to misclassification poses significant risks for businesses.

The Broader Implications for the Gig Economy: AB 5 has far-reaching implications beyond the physical therapy industry. Gig economy companies, such as Uber, Lyft, and DoorDash, have faced intense scrutiny and legal challenges regarding worker classification.

  • These companies argue that their drivers should be considered independent contractors, while critics argue that they should be classified as employees entitled to benefits and protections. The outcome of these cases may have a significant impact on the future of the gig economy and the classification of workers in various industries.


AB 5 has significantly impacted independent contracting in California, including the physical therapy industry. Physical therapy practices hiring independent contractor physical therapists must carefully evaluate their relationships within the guidelines of AB 5.

Most companies will likely need to transition workers from independent contractors to employees to mitigate risks and penalties associated with misclassification. It is crucial for physical therapy practices to seek legal counsel in this complex and evolving area to ensure compliance and avoid the potential consequences of misclassification.

Furthermore, the implications of AB 5 extend beyond the physical therapy industry, affecting the broader gig economy and the ongoing debate surrounding worker classification.

The outcome of legal challenges and potential legislative changes will shape the future of independent contracting and have far-reaching implications for various industries. Staying informed and adapting to evolving regulations is essential for businesses to navigate the complexities of worker classification in the ever-changing legal landscape.

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Frequently Asked Questions

Q: What is the main difference between mediation and arbitration?

A: Mediation is a voluntary process where a neutral mediator helps parties communicate and negotiate to reach a mutual agreement. In contrast, arbitration involves a neutral arbitrator making a final binding decision after hearing both sides of the dispute.

Q: Can parties in mediation or arbitration control the outcome?

A: In mediation, parties retain control and actively participate in the decision-making process, while the mediator facilitates discussions. In arbitration, parties have less control, as the arbitrator makes the final decision.

Q: Are mediation and arbitration processes confidential?

A: Yes, mediation discussions are confidential based on California law, and statements made cannot be used in any later proceeding. Arbitration can also be confidential, depending on the parties' agreement.

Q: Is the decision in arbitration enforceable?

A: If parties agree to binding arbitration, the decision is enforceable and can only be challenged in limited circumstances. Non-binding arbitration allows parties to seek other means of resolution, like a court trial.

Q: Which process is more cost and time-effective?

A: Mediation is often more cost and time-effective compared to litigation or arbitration, as it involves open communication and collaboration, potentially resolving the dispute in fewer sessions.

Q: Can parties in arbitration choose an arbitrator with specific expertise?

A: Yes, parties have the flexibility to choose an arbitrator with expertise in the subject matter of the dispute, ensuring a well-informed decision.

Q: Can mediation or arbitration preserve relationships between parties?

Mediation's collaborative approach can help preserve relationships, as parties work together towards a mutually acceptable solution. Arbitration may not focus on relationship preservation as the arbitrator's role is to make a binding decision.

Q: Are mediation and arbitration suitable for all types of disputes?

A: Both methods can be used for a wide range of disputes, but the choice depends on the parties' preferences, the complexity of the case, and the desired level of control over the outcome.

Q: Can parties appeal the decision in arbitration?

A: In binding arbitration, the decision is typically final and cannot be appealed. In non-binding arbitration, parties may seek further resolution through court litigation.

Q: Should legal counsel be involved in mediation or arbitration?

A: Legal counsel can provide valuable guidance throughout both processes, ensuring parties understand their rights, options, and the potential implications of any agreement reached.


At Dental & Medical Counsel, PC, we understand navigating the legal process can be tricky. We believe every doctor deserves the best advice and service so doctors can do what they do best, treat their patients. We make their lives easier by providing expert guidance, so they can focus on their personal and professional aspirations.

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About Ali Oromchian, Esq.

Ali Oromchian, JD, LL.M. is the founding attorney of the Dental & Medical Counsel, PC law firm and is renowned for his expertise in legal matters

In addition to practicing law for almost 20 years, Ali is also a renowned speaker, throughout North America, on topics such as practice transitions, employment law, negotiation strategies, estate planning, and more! Ali has helped hundreds of optometrists realize their professional goals and looks forward to aiding you in navigating the legal landscape. 


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