The commercial real estate market, in many ways, dodged AB 5, a new California State law the substantially restricts the use of subcontractors. In addition to real estate brokers, the construction industry is exempt under the new law. With already steep construction costs, the exemption was a relief to the industry.

“It is possible that AB 5 may have less of an impact on the construction industry than other industries such as the gig economy because the law specifically exempts traditional construction subcontractor relationships from its reach,” Dwayne McKenzie of Cox, Castle & Nicholson, tells GlobeSt.com. “AB 5 states that the ABC test of the Dynamex decision does not apply to the relationship between a contractor and an individual who is performing work under a subcontract, so long as a number of specific requirements are all satisfied, including that the subcontract is in writing, that the subcontractor is licensed by the Contractors State License Board and that the work is within the scope of such license. The law also recognizes that other professionals in the construction industry, including architects, engineers, and lawyers, are exempt from the three-factor test.”

However, it might be too early to breath easy. Trucking is more complicated, and for owner-operator trucks, the law could have an impact. “Treatment of owner-operators of trucks and other equipment is a significant issue, since they do not fit within the subcontractor exemption,” says McKenzie. “Although an additional exemption for “construction trucking services” was included in AB 5, it essentially prevents the use of brokers, which will create significant issues for contractors seeking to use owner-operators.”

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.

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