AB 2257: California Rewrites Independent Contractor Law...Again

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Ervin Cohen & Jessup LLP

As promised, Governor Newsom signed Assembly Bill 2257 which effectively rewrites Assembly Bill 5, the flawed law which sought to codify and clarify the California Supreme Court’s ruling in Dynamex Operations West, Inc. v. Superior Court and took effect on January 1, 2020.  AB 2257 became effective upon signature.

At approximately 14 pages in length, neither employees nor employers are likely to find AB 2257 any less confusing than its predecessor.  It does, however, make it easier for several categories of professions to work as independent contractors if certain conditions are met.  The bill also removes a requirement that forced many individuals contracting as a business to form partnerships, limited liability companies, or corporations rather than act as sole proprietors.  Further, the bill removes an important restriction that essentially made it impossible for a business to hire a subcontractor to deliver services to its customers. 

At its core, the law initially established by AB 5 remains unchanged.  AB 2257 still requires that anyone performing labor or services for pay be considered an employee unless the hiring entity can satisfy the ABC test.  The ABC test requires the hiring entity to prove that the purported contractor is: (A) free from control and direction by the hiring entity both under the contract and in the performance of the work; (B) that the work being performed is outside of the usual course of the hiring entity’s business; and (C) that the person is customarily engaged in performing work of the same nature as an independently established trade, occupation or business.

The devil, as they say, is in the details, and the details of AB 2257 provide many exceptions to the application of the ABC test.  Those exceptions each provide that in the event the ABC test cannot be applied in a particular circumstance, the determination of contractor status will be governed by the California Supreme Court’s decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, a 1989 case that provides a much more flexible multi-factor independent contractor test. 

Numerous occupations continue to enjoy an exemption from the ABC test established by AB 5.  These include physicians and surgeons, dentists, podiatrists, psychologists, and veterinarians licensed by the State of California providing services to or by a healthcare entity.  Licensed lawyers, architects, engineers, private investigators, and accountants are also excluded, as are security broker-dealers, investment advisors, certain direct salespersons, real estate agents, repossession agencies, and commercial fishers working on American vessels (until January 1, 2023).  Professional services persons working as enrolled agents, travel agents, processing agents, or in the areas marketing, human resources, graphic design, grant writing, and fine arts can be exempt provided certain conditions are met.  Construction subcontractors, licensed estheticians, licensed electrologists, licensed manicurists (until January 1, 2022), licensed barbers and licensed cosmetologists meeting certain defined criteria are excluded from the ABC test.  The exception for newspaper carriers continues but is still set to expire on January 1, 2021 (so you can expect to pay more for your newspaper soon!). 

AB 2257 adds photographers, photojournalists, videographers, and photo editors who meet defined criteria, along with landscape architects, real estate appraisers, home inspectors, professional foresters, and manufactured housing salespersons to the list of those not subject to the ABC test.  AB 2257 also creates new exceptions for international exchange visitors, specialized performers teaching a master class, and competition judges, including amateur umpires and referees. 

A new exception to the ABC test is the relationship between a data aggregator and an individual providing feedback to the data aggregator, provided that any consideration for the feedback is paid at a rate equivalent to or greater than the minimum wage, and provided the individual is required to exercise independent judgment and discretion in giving the feedback, is free from control and direction by the data aggregators, and has the ability to reject feedback requests without being penalized.

Additional important exceptions created by AB 2257, and a primary motivation for the statute itself, apply to various media-related professions and entertainment events.  In particular, the Borello test is to be applied to all of the occupations included in connection with creating, marketing, promoting or distributing sound recordings or musical compositions such as recording artists, songwriters, lyricists, managers, record producers, directors, musical engineers, musicians, vocalists, photographers, radio promoters, and publicists, but not including film and television crews.  There is also a general exception for musical groups or musicians for the purpose of single-engagement live performance events where the group is a headliner at a venue with more than 1,500 attendees or is performing at a festival that sells more than 18,000 ticket tickets per day.  Individual performance artists performing material that is original and creative in character and the result of the individual’s own invention, imagination, or talent, can also be exempt from the ABC test if other conditions are satisfied

The statute creates a more general single-engagement 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, provided neither individual controls the other, that each can negotiate the rate of pay, that there is a written contract between them, that they each have their own business location (which may include the individual’s personal residence), that they have the required license or a tax registration, that they are customarily engaged in the same type of work and are free to work for other businesses in performing the same or similar services.

Additional occupations for which the Borello test will be applied include freelance writers, translators, editors, copy editors, illustrators or newspaper cartoonists, as well as content contributors, advisers, producers, narrators or cartographers, who work under written contract that includes the rate of pay, intellectual property rights, an obligation to pay by a defined time, and provided the individual performing the services is not directly replacing an employee who performed the same work for the hiring entity.

The professional services and business-to-business exceptions created by AB 5 are preserved and now allow for individuals acting as sole proprietors to engage as independent contractors.  The same is true for the previously established referral services exception.  Another important change to the business to business exception allows 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.  These providers must still meet the pre-existing obligations for these exceptions including having an appropriate business license or tax registration in the jurisdiction where the work is to be performed.

In addition to other remedies already available, AB 2257 adds the possibility of injunctive relief to prevent continued misclassification of employees as independent contractors in any action against a putative employer brought by the attorney general, district attorney, or a city attorney.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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