California’s Independent Contractor Bill: A Threat to Travel Advisors?

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A new bill in California could shake up the entire independent contractor model for travel advisors. The bill, which recently passed through the State Assembly but must still pass in the State Senate before it’s signed into law by the Governor, “threatens the business model of travel agencies in California that rely on independent contractors (ICs) to sell travel,” according to the American Society of Travel Advisors (ASTA).  

“The bill would ‘codify’—turn into law—the so-called ‘Dynamex decision,’ a 2018 court decision severely limiting the ability of California businesses to utilize ICs,” an ASTA spokesperson told Luxury Travel Advisor. “ASTA is working with the California Coalition of Travel Organizations (CCTO) and others to amend this legislation and protect California travel small businesses.”

This bill would almost certainly affect both ICs based in California who work for an agency in another state—and vice versa. “I can tell you this will affect tens of thousands of people,” Diane Embree, CCTO president and IC for Michael’s Travel Centre tells us.

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What Makes an Employee?

The bill, AB 5, states that to declare a worker an IC, a business must prove that the worker:

  1. 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.
  2. Performs work that is outside the usual course of the hiring entity’s business.
  3. Is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

All three criteria must be met to classify a worker as an IC.

If it’s deemed that the IC is, in fact, an employee, the business would then be on the hook for benefits, paid parental leave, overtime pay and worker’s compensation—creating unanticipated expenses for the agency. There’s a high possibility that many of the ICs would not be hired as full-time employees due to the costs of bringing them on board; in an informal survey conducted by the CCTO, Embree found that many agencies would not offer their ICs employment. There’s also the matter that many ICs prefer this business model to being a house advisor and might not want to become an employee, Embree says.

Who Else Would Be Affected?

It’s not just ICs and their host agencies who could be affected. The bill may have a snowball effect: “What you have is a situation where agencies are losing business because they can't afford to hire independent contractors as employees, or they try to hire them and they don't want to be employees. And, so, they are losing business that's being brought to them by the IC,” Embree says. “And then you have ICs who are now suddenly out of work. And then you have clients who no longer can deal with the person they'd been dealing with for 10, 20, 30 years. You have agencies, because they're losing business, who may have to lay off individuals or close their doors.”

It would also be difficult for ICs to open their own agency, as there are the added costs of running your own business, such as E&O insurance. These advisors would likely lose out on their travel agency network affiliations, such as Signature and Virtuoso, which offer benefits to the advisors and their clients—these perks would suddenly vanish.

Will This Definitely Happen?

There is still the possibility that travel professionals are exempted from the bill, as a number of licensed professionals, such as doctors, dentists, lawyers, insurance and real estate agents, financial advisors and hairstylists, made the cut when AB 5 was passed in the Assembly.

“So far the travel industry has not received an exemption” a statement from the CCTO read. “The exemptions that have been granted so far are for industries that have licensing. During the floor discussion, prior to the passage of AB 5 by the state Assembly, the bill's author, Assembly Member Lorena Gonzalez, reiterated her intention to address additional industries and situations with amendments, as the bill moves forward.

“CCTO is working hard to get an exemption and we are in regular contact with Gonzalez's office. We continue to advocate for the inclusion of provisions stating that under the California Seller of Travel Law independent agents are independent contractors. We remain hopeful that as AB 5 is amended the travel industry will be exempted.”

“Eben [Peck, executive vice president, advocacy] and Peter [Lobasso, general counsel] are following AB5 closely, as well, and it is disappointing that it doesn’t currently include an exemption that would cover travel advisors,” the ASTA spokesperson said. “Hopefully there will be further amendment of the bill as it progresses through the state senate.”

Keep checking Luxury Travel Advisor for updates on the bill and reactions from advisors to see how it could affect their business.

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