Worker Classification Update: California's A.B. 2257 Expands & Clarifies A.B. 5 Exemptions

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Hirschfeld Kraemer LLPOn September 4, 2020, Governor Newsom signed A.B. 2257, follow-up legislation to A.B. 5, California’s landmark 2019 law that radically changed the state’s treatment of employees and independent contractors by replacing the longstanding Borello classification test. The new law attempts to clean up many industry-specific provisions that became more apparent after A.B. 5 became law.

Background: A.B. 5 and Worker Classification
As we previously wrote and discussed, in September 2019, California enacted A.B. 5, which codified the ABC test to determine whether workers are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission. At the time, we noted that A.B. 5 contained a number of industry-specific exemptions, the result of intense lobbying by labor unions, trade associations, and the Chamber of Commerce. Because of that, A.B. 5 was criticized as giving gifts to industries which had the financial ability to stage the largest lobbying campaigns.

After A.B. 5 was passed, significant confusion ensued about how employers large and small could comply with its broad-ranging requirements. Indeed, the bill was heavily criticized by many small businesses and freelance workers, resulting in amendments earlier this year related to journalists, writers and photographers, and musicians and music production.

A.B. 2257 Clarifies and Expands A.B. 5’s Industry-Specific Provisions
Among other things, A.B. 2257:

> Clarifies the conditions for existing business-to-business and referral agency exemptions to cover any type of service being provided except for “high-hazard” industries and other industries where workers are at “high-risk” of mis-classification, including janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, and construction services other than minor home repair.

> Broadens and clarifies the business-to-business exception under A.B. 5:

  • Business-to-business contractual relationships can now include individual workers and/or sole proprietors provided that they are “two bona fide businesses…contracting with one another”
  • Business contracted to provide services to another business’s customers can do so under the business-to-business exemption when the services are being performed by the business service provider’s employees under their employer’s name

> Revises specific A.B. 5 requirements for existing exemptions for writers, still photographers, and various types of journalists:

  • Removes the existing requirement for the ABC test to apply after a freelance writer, still photographer, photojournalist, or editor has provided more than 35 content submissions to a single hiring entity
  • Requires hiring entities to demonstrate that: (i) workers are providing services pursuant to a contract specifying time of delivery of payment, rate or pay, and the worker’s intellectual property rights; (ii) workers are not primarily providing services at the hiring entity’s business location; and (iii) the hiring entity does not hire the individual to directly replace an existing employee doing the same work at the same volume or preventing the individual from providing services to more than one hiring entity

> Adds A.B. 5 exemptions related to the creation, marketing, promotion, or distribution of sound recordings or musical compositions, including the following professionals:

  • Musicians, vocalists, and other recording artists
  • Composers
  • Songwriters, lyricists, and proofers
  • Musical engineers
  • Sound mixers
  • Record producers and directors
  • Other professionals involved in the creation, marketing, promotion or distribution of a sound recording or musical composition

> Adds certain independent contractor exemptions from A.B. 5 for musicians/musical groups, except for:

  • A musician performing as part of a tour of live performances
  • A musical group regularly performing in a theme park or amusement park setting
  • A musician performing in a symphony orchestra
  • A musician performing in a musical theatre production

> And finally, adds other exemptions from A.B. 5, including:

  • Performance artists who teach limited master classes or set their own terms of work and perform material that is their original work for which they retain the intellectual property rights and have full artistic control, except for performers in theatrical productions who are subject to control and direction by their hiring entity
  • Inspection underwriters and other specified insurance industry services
  • Manufactured housing salespersons
  • Certain international exchange visitor program workers
  • Certain consulting services workers
  • Certain animal services workers
  • Competition judges with specialized skills
  • Licensed landscape architects
  • Specialized performers teaching master classes
  • Registered professional foresters
  • Real estate appraisers and home inspectors
  • Feedback aggregators

Conclusion
Ultimately, additional feedback from various industries resulted in A.B. 2257’s significant number of industry-specific exemptions, reflecting significant unease that remains regarding widespread enforcement of A.B. 5, including in the gig economy, which we have discussed here.

Takeaways
Drafted as an urgency matter, A.B. 2257 takes effect immediately. Accordingly, businesses should:

  • Do a comprehensive review of all workers currently classified as independent contractors to see if that classification still fits – especially with regard to workers in the categories identified above, and
  • Review business-to-business and referral agency relationships in accordance with these new requirements.

Navigating worker classification in California has never been more complicated.

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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