Those who are or use independent contractors (“IC”) know that effective January 1, 2020, Assembly Bill 5 (“AB 5”) codified the ABC Test for classifying ICs and expanded its application to all Labor Code claims, the Unemployment Insurance Code, and the Wage Orders of the Industrial Welfare Commission. See, e.g., Cal. Lab. Code § 2750.3 (repealed by Assembly Bill 2257). (Our November 2019 article, “Employment Law Updates: (1) Independent Contractor Classification (AB5) and (2) Mandatory Sexual Harassment Training for Small California Employers,” discussed the impact and questions left open by AB 5).
A short nine months after AB 5 became effective, on September 4, 2020, California Governor Gavin Newsom signed into law Assembly Bill 2257 (“AB 2257”), which took effect immediately. AB 2257 replaces AB 5 and can be found in Labor Code Sections 2775 to 2786, among other statutory provisions. See generally Assembly Bill No. 2257, https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB2257; Assemblywoman Lorena Gonzalez, Fact Sheet for AB 2257 (Gonzalez): Protecting Workers, Businesses, and Taxpayers Against Misclassification, available at https://a80.asmdc.org/article/fact-sheet-ab-2257-gonzalez-protecting-workers-businesses-and-taxpayers-against.
In brief, AB 2257, which was authored by the same author of AB 5 (Assembly member Lorena Gonzalez (D-San Diego)), maintains the essential framework of (in an arguably easier to read framework) and modifies AB 5 by adding some additional types of occupations and business relationships as exempt from AB 5’s strict ABC Test. We note, though, that while AB 2257 exempts additional occupations and business relationships from the ABC Test, the independent contractor compliance assessment does not end there; the Borello factors remain the default test for determining a worker’s status as an independent contractor.
Turning to AB 2257, the additional freelancers include people who provide underwriting inspections and other services for the insurance industry, a manufactured housing salesperson, people engaged by an international exchange visitor program, consulting services, animal services, competition judges, licensed landscape architects, specialized performers teaching masterclasses, registered professional foresters, real estate appraisers and home inspectors, and feedback aggregators. See Legislative Counsel’s Digest to AB 2257. Moreover, under AB 5, freelance writers, photographers, photojournalists, editors, and cartoonists were exempt from the ABC Test if they submitted content no more than 35 times a year; AB 2257 eliminates the numerical limit.
As you may have noticed in the above list, freelance writers and photographers, along with freelance editors, cartoonists, and musicians, feature prominently in the additional ABC test exceptions included in the law. Their addition was the result of concerted lobbying efforts by interested industry groups.
In addition to adding more freelancers to the list of those exempt from the ABC Test and subject to the more multi-factor Borello test, AB 2257 also modifies in more modest ways the business-to-business, professional services, and referral agency exemptions of AB 5. Of particular note, AB2257:
- Creates an exemption from the ABC Test for “single-engagement events,” including single-engagement live performance events where the musician or musical group is a headliner at a venue with more than1,500 attendees or is performing at a festival that sells more than18,000 ticket tickets per day and a more general non-musical event exception which allows for individuals to work together to create a single event, or a series of events in the same location no more than once a week. Cal. Lab. Code § 2779.
- Expands the business-to-business exemption by allowing for a service provider to perform services directly to the customers of the contracting business if the service provider’s employees are solely performing services under the name of the business service provider and the business service provider regularly contracts with other businesses.
Ultimately, the law in California remains protective of workers and militates against independent contractor classification. Just because a services engagement may meet an exemption to the ABC Test, does not mean viable independent contractor classification will follow. It just means that you have to analyze the relationship under the multi-factor Borello test. Best practices dictate that you should seek assistance from experienced counsel before making any definitive IC classification decision.
Our employment law team at Scherer Smith & Kenny LLP remains available to address any questions you may have related to these or other employment- or business-related issues. For additional information, please contact Denis Kenny at firstname.lastname@example.org, Ryan Stahl at email@example.com, or John Lough, Jr., at firstname.lastname@example.org.
– Written by Denis Kenny