The History of Domestic Referral Agencies in California

A Domestic Referral Agency is a business that refers domestic help to private homes. The workers they refer are not their employees, but are independent domestic workers. By operating under this business model, the Domestic Referral Agency offers the domestic worker the freedom to operate independently, while passing the financial savings to the consumer. The result: An independent domestic worker who has control of his/her working environment and income and a consumer that has the choice of a more cost-effective way to engage domestic service providers.

In December 1987, Domestic Referral Agency owners in the Sacramento area started a networking group to meet and discuss their common business interest.

In the fall of 1988, the Domestic Referral Agency networking group learned that the IRS (Internal Revenue Service) had created its “Employment Tax Examination Program”, which called for audits of small business to determine if they had misclassified workers as independent contractors. During the first year of this program, 92% of the audited 9,000 employers, including some Domestic Referral Agencies, were ruled to have misclassified workers as independent contractors. The California EDD (Employment Development Department) was working hand in hand with the IRS in auditing Domestic Referral Agencies. During the time frame the EDD conducted business tax audits on some Domestic Referral Agencies, automatically reclassifying the domestic workers as employees, then presenting the Agency with large bills for back employee payroll taxes, and fines and penalties.

Upon learning of the audits, the Domestic Referral Agency networking group decided to seek assistance from the State Department of Personnel Services, which licensed Domestic Referral Agencies since the early 1970’s. Representatives from the Domestic Referral Agency networking group met in October 1988 with the Director of State Department of Personnel Services, with the goal of establishing more effective guidelines for the use of independent contract domestic workers. All efforts to work with this department were unsuccessful.

In December 1988, the Domestic Referral Agency networking group met with a Member of the State Assembly to ask if he would be willing to introduce legislation with the intent of clarifying the status of independent contractors for Domestic Referral Agencies. The Assemblyman suggested, rather than drafting legislation, that the Domestic Referral Agency networking group try working with the EDD. The Assemblyman’s aide set up a meeting between the Domestic Referral Agency networking group and the EDD Director. Unfortunately, all efforts to work with the EDD were unsuccessful.

On January 1, 1990, AB 2113 was enacted, which repealed the statue requiring Domestic Referral Agencies to obtain a license under Department of Personnel Service (this department was closed at the end of 1989). This bill required Domestic Referral Agencies to have a $3,000.00 Surety Bond filed with the Secretary of State and to obtain a business license, if required by the city or county of the business location. By eliminating the licensing requirement with the closing of the Department of Personnel Service, the Domestic Referral Agencies were further exposed for employment classification audits from government agencies.

In May 1990, April’s Housekeeping received a tax assessment bill from the EDD for over $20,000.00 in taxes and penalties as a result of their ruling to reclassify the domestic workers as employees. This precedent-setting tax decision case paved the way for the possible demise of the Domestic Referral Agency Business Model.

By August 1990, due to increasing pressures from governmental audits that continued to challenge the right of Domestic Referral Agencies to operate with independent contract domestic workers, the Domestic Referral Agency networking group expanded to include Domestic Referral Agencies from all areas of California. This expansion was done to strengthen the grass roots efforts needed to protect the Business Model.

In 1992, AB (Assembly Bill) 3059 was sponsored by the California Employment Development Department (EDD). If passed, AB 3059 would have eliminated all independent contract workers for all service industries. In short, Domestic Referral Agencies would have been put out of business or forced to convert to an employee-based agency. Through the cohesive efforts of the Domestic Referral Agency networking group and others, AB 3059 was defeated.

In 1993, the Domestic Referral Agency networking group was able to get a bill introduced by Assembly Member Ferguson. After much effort and testimony, before both the Assembly and the Senate, AB 1370 was passed into law on January 1, 1994. This very important law ensured the right of all Domestic Referral Agencies to register and refer independent domestic workers in California by establishing regulations for the relationship between the Domestic Referral Agency, the independent domestic worker, and the client. This bill added Section 1812.5095 to the Civil Code, amended Section 629 and added Section 687.2 and 13005.7 to the Unemployment Insurance Code. A major factor credited to the enactment of AB 1307 was the fiscal argument presented by the Domestic Referral Agencies. The legislators were presented with information regarding a potential negative fiscal impact to the State of California: no taxes would be paid on unreported income from workers who, without Domestic Referral Agencies, would return to the underground economy.

At this point, members of the Domestic Referral Agency networking group began to present workshops to other Agencies in the State in order acquaint them with the new law.

In 1994, Senator Johnston introduced SB (Senate Bill) 1418 with the intent to clarify some additional items for the consumer. SB 1418 was passed into law on January 1, 1995. SB 1418 amended Section 1812.5095 of the Civil Code; the amendments included a requirement to verify legal status of domestic workers, the addition of oral and written client disclosures, and written disclosure on advertisement.

In 1996, Senator Killea introduced SB 2030. This bill was passed and amended Section 1812.504 of the Civil Code. This allowed the Domestic Referral Agencies to have referral agreements with domestic workers on a continual basis, rather than the prior requirement to renew the referral agreement every 180 days.

From 1996 through 2003, legislative actions had ceased and the Domestic Referral Agencies had regulations to successfully operate under. Some agencies made the effort to meet periodically with both new and established businesses to discuss the Civil and Unemployment Code regulations, and other requirements of Domestic Referral Agencies, for the continued good of the Business Model.

On February 20, 2004, Assembly member Patty Berg introduced AB 2704. CAHSAH (California Association for Health Services at Home), along with Merry Maids as a strong supporter, sponsored the bill. AB 2704 was an extremely harmful piece of legislation to Domestic Referral Agencies. If passed into law, AB 2704 would have destroyed the Domestic Referral Agency Business Model by enacting changes to the law that would be impossible to comply with, leaving the Business Model vulnerable once again.

Members of the Domestic Referral Agency networking group became aware of AB 2704 in April 2004. By that time it had already passed the initial reading on the Assembly Floor, passed through two Assembly Committees and was ready to be heard for the final reading on the Assembly Floor for possible passage to the Senate, which did take place.

AB 2704, among many other items, would have mandated unrealistic, onerous client disclosures and the elimination of the “trust account” method of payment. AB 2704 was shelved in the Senate Appropriations Committee, in August 2004, due to the argument set forth by the Domestic Referral Agencies, that there was great potential for a negative fiscal impact on the State of California.

To stop AB 2704 from passing into law it took several months of the combined efforts of many, including: Domestic Referral Agencies across the State, advocates of Domestic Referral Agencies on the National level, registered independent domestic workers, clientele who were doing business with the Domestic Referral Agencies and the service of lobbyists in Sacramento.

There was a collective sigh of relief when this intense legislative battle was won. Hooray! Domestic Referral Agencies could continue to operate in California. However, AB 2704 was a wake-up call. Employee-based companies were using the state legislature as a means to try to eliminate their competition: Domestic Referral Agencies.

The following year on February 16, 2005 Assembly Member Rudy Bermudez introduced AB 551. Merry Maids, along with CAHSAH as a strong supporter, sponsored the bill. Do these names sound familiar? The same sponsor and supporter as AB 2704, only in reverse. AB 551 was extremely harmful for the Domestic Referral Agencies as it called for:

• Eliminating the agencies right to make calls to clients to determine their satisfaction with the referral service,
• Placing agencies at high risk of becoming victims of business identity theft by mandating the inclusion of taxpayer ID #s on business forms,
• Additional advertising disclosures, which would have been impossible to comply with, subjecting agencies to fines for unpaid/unsolicited advertising,
• Encouraging consumers to bypass the “trust account” payment method,
• Discouraging consumer choice by adding unnecessary, unfair, lengthy and onerous oral and advertising disclosures.

In addition, AB 551 called for precedent-setting legislation by mandating that consumer and advertising issues be placed under the Unemployment Insurance code for oversight by the EDD.

The battle against AB 551 was less intense than AB 2704, in part, because Domestic Referral Agencies were on alert and read AB 551 on February 17th. Any chance of defeating this bill based on the fiscal impact to the State was eliminated shortly after the bill was introduced, as the Sponsor dropped the change to the Trust Account, leaving no fiscal argument. There was no choice but to negotiate acceptable amendments in order to fight the other negative effects of AB 551.  This required diligent negotiations against each harmful item in the proposed bill. In the end, all harmful aspects of the bill were dropped and what remained were unwarranted additional enhancements to written and oral client disclosures.

When AB 551 went to the Governor’s office for signing or vetoing, thankfully, governor Schwarzenegger did indeed veto the bill. Many, including the Governor, thought this legislation was an anti-competitive measure aimed at driving referral agencies out of business in the state of California. Part of the Governor’s veto message was, “the bill would give another segment the competitive advantage by adding unnecessary and inappropriately redundant requirements for Domestic Referral Agencies”.

Once again, Domestic Referral Agencies breathed a huge sigh of relief. AB 551 did not result in any changes to the Civil and Unemployment codes that regulate Domestic Referral Agencies. Fortunately, Domestic Referral Agencies were better prepared in this battle and now understand the importance of both monitoring legislation and having a legislative advocate during such legislative battles.

In 2005, a second bill was introduced, which required the attention of the Domestic Referral Agencies; AB 652 introduced by Assembly Member Levine. The intent of this legislation was to set up a pilot project for IHSS, In-home Supportive Services. If passed, AB 652 would have expanded the current IHSS program into the private sector, creating an unfair advantage, as IHSS would not have to adhere to the same regulations as Domestic Referral Agencies even though they refer independent domestic workers.

Through the combined efforts of the Domestic Referral Agency networking group and others, AB 652 was placed in the suspense file in the Senate Appropriations committee due to the fiscal impact to the State.

Unfortunately, the battle against AB 652 was not over. Assembly Member Baca introduced AB 477 in 2005. This bill became a ”Gut and Amend” bill when the almost identical language of AB 652 replaced the original text of AB 477. This bill was sponsored by SEIU (labor union). AB 477 was also placed in the suspense file in the Senate Appropriations Committee. However, the bill was later taken off the suspense file and preceded through the legislative process, passing through the Senate, the Assembly and was then forwarded to the Governor for signing or vetoing. Again, thanks to Governor Schwarzenegger, AB 477 was vetoed.

Domestic Referral Agencies have worked together in getting legislation passed to standardize and protect the Domestic Referral Agency Business Model, and when necessary, successfully defeating harmful legislation. Agencies remain vigilant in protecting the Business Model now and in the future.

Owners and operators of Domestic Referral Agencies have been involved in serving on both the State Small Business Advisory Committee and on the leadership council of the National Federation of Independent Business Owners. Since 1993, Workshops have been presented throughout California, to inform Domestic Referral Agency owners and operators about the State Civil and Unemployment Codes, and other factors that regulate the Business Model, to encourage compliance with these laws.

The California Coalition of Domestic Referral Agencies, Inc. (CCDRA) is a non-profit mutual benefit member organization of Domestic Referral Agencies. CCDRA was established as a means for Domestic Referral Agencies to remain committed in supporting continual education and awareness, monitoring legislation and to be part of group united in the protection of the Domestic Referral Agency Business Model.