In 2019, a California bill, AB 5, was signed into law. The bill addressed employment status when a hiring entity claims that the person it hired is an independent contractor. AB 5 requires the application of the ABC test to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission wage order. The law would have required many independent contractors, including insurance agents and advisors, to become W-2 employees of every carrier they’re connected to.
NAIFA-CA, CAHU, and IIABCal successfully got an exemption for life agents, advisors, P&C agents, brokers, and health agents from the new law. The exemption applies to licensees working for independent agents and brokers, as well as licensees working for captive insurers and direct writers.
Not long after AB 5 passed in California. Congress began seriously considering the PRO Act, which also established an ABC test to broaden the ability of unions to allow employees to unionize. A goal of the legislation would be to give as many workers as possible access to unions.
Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
NAIFA is primarily concerned with part B of the three criteria. One way to look at it would be, if Burger King hired you to pick up dry cleaning, you could argue that you are an independent contractor and not an employee. However, if Burger King had you selling hamburgers at the side of the road, you would be considered an employee.
The 1099 status is vital to the insurance and financial services industry. If that were to be removed, it would revolutionize the industry for the wrong reasons. NAIFA members who operate as independents would lose the ability to make their own decisions and run their own businesses.
A few states have initiated their own bills to establish an ABC test without an exemption for insurance and financial advisors, though, so far, none has made it into law. This is a significant area of concern for NAIFA members. In 2021, NAIFA conducted a robust survey of its members on the legislation. Results indicate that:
The top concerns of members should they be reclassified as employees include: