California Makes Changes to Independent Contractor Law – AB 2257

Last Updated on November 24, 2020 by bigfish-admin

On September 4, 2020, Governor Gavin Newsom signed AB 2257 which enacts changes to independent contractor laws in California and went into effect immediately upon signature. In an effort to clarify AB 5, the new bill focuses largely on expanding and/or clarifying the exemptions to the ABC test for independent contractors under AB 5. 

California employers in many industries are affected by AB 2257; pay close attention to the changes in the bill and the litigation that may ensue. 

Review of AB 5 

The previous bill, AB 5, codifies and clarifies the three-part ABC test, adopted in a Dynamex decision, for determining a worker’s classification as either independent contractor or employee. Which dictates, workers are (by default) employees under California law unless the hiring entity can establish the following: 

  1. The worker is free from control and direction of the hiring entity over performance of the work, both under the contract and in fact
  2. The worker performs work that is outside the usual course of the hiring entity’s business 
  3. The worker is customarily engaged in an independently established trade, occupation, or business

This broadly applies to:

  • the entire California Labor Code
  • the Unemployment Insurance Code
  • wage orders of the Industrial Welfare Commission
  • retroactively to existing claims and actions “to the maximum extent permitted by law” 

There are industries and professions exempt from the ABC test, including but not limited to: 

  • Medical Professionals
  • Lawyers
  • Architects
  • Engineers
  • Private Investigators 
  • Accountants 
  • Securities Broker-Dealer
  • Investment Advisers
  • Direct Salespersons
  • Commercial Fishermen 
  • Aestheticians 
  • Hairstylists
  • Real Estate Agents 

In the case of these exemptions, the worker’s status is governed by the more malleable and permissible multifactor Borello test. Exemptions for certain occupations and industries resulted in efforts to clarify the application of these exemptions and/or seek additional exemptions for other industries. Resulting in the enactment of AB 2257. 

AB 2257

AB 2257 is focused on clarifying and expanding industry exemptions set out in AB 5. Many of the changes are potentially significant, opening the door for new potential enforcement actions and litigation. Here are some key changes to become familiar with: 

Business-to-Business Exemptions

Previously, under AB 5, an exemption exists for “bona fide business-to-business contracting relationships.” Currently, under AB 2257: 

  • Individuals acting as sole proprietors may engage as independent contractors under the business-to-business exemption
  • The business-to-business exemption now applies to a “public agency or quasi-public corporation” that has retained a contractor
  • Businesses contracted to provide services to the customers of another business can do so under the business-to-business exemption under the following circumstances: when the services are being performed by the business service provider’s employees under their employer’s name; and the business service provider regularly contracts with other businesses
  • A new exemption is created for individuals who contract with one another “for purposes of providing services at the location of a single-engagement event,” provided certain criteria are met

Referral Agency Exemptions

AB 2257 expands the scope of the referral agency exemption significantly, applying the exemption to a non-exclusive list of additional services, including but not limited to:

  • Consulting
  • Youth Sports Coaching 
  • Caddying 
  • Wedding or Event Planning/Services  
  • Interpreting Services

Exemptions for Writers, Photographers, and Journalists 

AB 2257 clarifies existing exemptions for writers, photographers, and journalists as follows: 

  • Removes limitation on number of submissions for certain independent contractors, including photographers, photojournalists, videographers, photo editors, freelance writers, editors, copy editors, illustrators, and newspaper cartoonists, before triggering the need to be classified as employees
  • Expands occupations that may be exempt from the AB test to include content contributors, advisors, producers, narrators, or cartographers for certain publications (provided they do not displace existing employees); specialized performers hired to teach a class for no more than a week; appraisers; registered professional foresters; and home inspectors

New Music Industry and Performance Exemptions

There are several new exemptions created under AB 2257 for the music industry. The following professions are exempt from the ABC test:

  • Recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers and mixers, musicians, vocalists, photographers, independent radio promoters, and certain types of publicists
  • Musicians and musical groups engaged for a single-engagement live performance event, provided that they meet certain restrictions
  • Individual performance artists, such as comedians, improvisers, magicians and illusionists, mimes, spoken-word performers, storytellers, and puppeteers who perform original work they created, provided specific requirements are met

Miscellaneous Exemptions

There are miscellaneous exemptions added for manufactured housing salespersons, certain individuals engaged by international exchange visitor programs, and competition judges (including amateur umpires and referees).

AB 2257 offers some additional clarity regarding existing exemptions and expands exemptions for specific industries. misclassification remains a significant risk to California employers due to the nature of current regulations. It is important to keep in mind that even if an exemption applies, the common law multifactor Borello test must still be applied to determine a worker’s status. Employers should exercise extreme caution in classifying workers and consult legal counsel where necessary to carefully evaluate new and existing worker classification.  

Big Fish will continue to report on further developments to this law and other related legislation nationwide. Information contained in this publication is intended for educational or informational purposes only and does not constitute legal advice or opinion, nor is this a substitute for the professional judgment of an attorney. For additional assistance with how to prepare to comply with these new requirements, contact Big Fish Employer Services.

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