Breaking News: Immediate Changes to California’s AB 5 Independent Contractor Restrictions May be in Place Next Week
Have you finally completed your exhaustive analysis of CA’s 2019 AB 5 and the Dynamex decision of 2018? Have you realigned your business model in lock step with the ABC test and completed the painful process of restructuring any relationships you have had with independent contractors?
If so, congratulations on being on top of one of the most complex and challenging twists in employment law in the last 50 years.
Oh, and let us introduce you now to AB 2257…
Legislation Poised to Reach the Governor Next Week
It is expected that, by early next week, the state legislature will have passed, and the governor will have signed into law, emergency legislation significantly amending AB 5. While much of the existing law will remain unchanged, the new law is another “game changer” (a designation that is almost becoming passé these days)!
As emergency legislation, the law will take effect immediately, meaning that it will very possibly be effective before the Labor Day holiday.
The complete abstract of AB 2257 can be found here https://openstates.org/ca/bills/20192020/AB2257/ and for more of our summary, please continue reading on our blog.
Some Background: AB 5 and AB 2257
The quest for changes to the massively restrictive AB 5 began almost immediately after it became effective on January 1, 2020. At one point there were over 30 pieces of competing legislation, now synthesized into one – AB 2257. Some lawmakers are still calling for additional “refinement” of AB 5 and some even for a complete eradication of the law altogether. Expect more to come, including Proposition 22 (focusing specifically on the transportation and delivery industries) on the November ballot which would essentially create a new class of worker – independent contractors with some employee benefits.
Refresher: Borello and ABC
Further, it is critical to note that AB 2257 does not repeal AB 5, nor does it create any kind of a Wild West for Contractors. The legislation was authored by Assemblywoman Lorena Gonzalez, D-San Diego, who was also the author of AB 5! In fact, in most cases, AB 2257 just takes us back to the pre-Dynamex days of the 11-factor Borello Test, focusing on whether a company has control over the means and manner of performing contracted work, and additional secondary factors, such as who provides work tools and the individual’s opportunity for profit or loss, to determine contractor status.
The Dynamex decision was codified through AB 5 and introduced the ABC test (currently in effect) which requires that:
A – The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
B – the worker performs work that is outside the usual course of the hiring entity’s business;
C – The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
AB 2257 – Who Will be Exempted?
At its core, AB 2257 expands the exemptions allowed under AB 5 from 41 to 67. That is a lot to keep track of, but here is a “brief” summary…
The existing exemptions under AB 5 include persons providing professional services under specified circumstances, including certain services provided by still photographers, photojournalists, freelance writers, editors, and newspaper cartoonists.
Among the more applicable changes provided for under the legislation if passed as it currently stands, is that it would create an exemption for business-to-business relationships between two or more sole proprietors, as specified in the legislation. The bill would provide that a hiring entity need only satisfy all of the conditions of one of the exemption provisions to qualify for the exemption from the ABC Test.
Further, it creates additional exemptions from the ABC test for various professions and occupations, including people who provide underwriting inspections and other services for the insurance industry, manufactured housing salespeople, people engaged by an international exchange visitor program, consulting services, animal services, and competition judges with specialized skills. The bill would also create exceptions for licensed landscape architects, specialized performers teaching master classes, registered professional foresters, real estate appraisers and home inspectors, and feedback aggregators.
The bill would exempt business service providers providing services pursuant to contract to another business, and would revise the criteria pursuant to which referral agencies and service providers providing services to clients through referral agencies are exempt, and would revise applicable definitions.
Among the other significant new exemptions provided for under the legislation if passed as it currently stands, are certain occupations in connection with creating, marketing, promoting, or distributing sound recordings or musical compositions, musicians or musical groups for the purpose of a single-engagement live performance event, individual performance artists presenting material that is their original work.
And, just in case this is all too easy to understand so far, AB 2257 would delete the existing professional services exemptions for services provided by still photographers, photojournalists, freelance writers, editors, and newspaper cartoonists. Instead, it establishes an exemption for services provided by a still photographer, photojournalist, videographer, or photo editor, as defined, who works under a written contract that specifies certain terms, subject to prescribed restrictions.
Significant to many organizations looking to outsource some of their marketing functions, the bill would also establish an exemption for services provided to a digital content aggregator, as defined, by a still photographer, photojournalist, videographer, or photo editor. The bill would establish an exemption for services provided by a fine artist, freelance writer, translator, editor, content contributor, advisor, narrator, cartographer, producer, copy editor, illustrator, or newspaper cartoonist who works under a written contract that specifies certain terms, subject to prescribed restrictions.
If we thought it was a Herculean task to unwind all the nuances of Dynamex and AB 5, we will have to be prepared for another challenge of mythical proportions beginning as soon as the first week of September. While the overriding concept behind AB 2257 involves a positive loosening of restrictions on the use of independent contractors, it is clear that we will have to be prepared for expanded litigation and a long process of study and evaluation to decide what will be the best move forward for our respective organizations.