News

AB 5 AND INDEPENDENT CONTRACTOR LAW REVISED !!!

Printer Friendly

As we all know, AB5 was passed into law on January 1, 2020, which entirely changed the landscape relating to the classification of certain workers as independent contractors. Specifically it codified and expanded the “ABC” test, which had been adopted by the 2018 California Supreme Court decision in Dynamex Operations W. Inc. v. Superior Court. One major impact of AB5 was that it made the “ABC” test the default test for all Labor Code, Unemployment Insurance Code and Wage Order claims.

On September 4, 2020 Governor Newsom signed the highly anticipated AB 2257 entitled “Worker classification: employees and independent contractors: occupations: professional services” which revises and clarifies AB5 and expands the class of workers potentially exempt from the reach of AB5.

This is good news for both workers and the hiring entities. Also, good news is that AB 2257 shall apply retroactively to existing claims to the maximum extent permitted by law and shall apply to work performed on or after January 1, 2020.

THE “ABC” TEST – A SUMMARY

A person providing services is presumed to be an employee UNLESS all three of the following elements are:

(A) the worker is free from the control and direction of the hirer in connection with the performance of the work; and

(B) the work provided is outside the usual course of the hiring entity’s business; and

(C) the worker is customarily engaged in an independently established trade, occupation, or business.

WHAT’S NEW: CHANGES TO AB5
With the passage of AB 2257 (which interestingly was sponsored by the same assembly person who sponsored AB5) there are new exemptions expanding the scope of which workers may be exempt from the “ABC” test. But those workers still need to meet the long standing common law “Borello” test, where the primary factor was who controlled the manner and means by which the work was performed, to maintain independent contractor status.
The specifics of each Labor Code Section can be found here:

Business to Business Exemption – Labor Code Section 2765

The business-to-business exemption a shall apply if there is a bona fide business-to-business contracting relationship” where the business service provider:

  • is free from the control and direction in connection with the performance of the work, both under the contract for the performance of the work and in fact and;
  • is providing services directly to the contracting business rather than to customers of the contracting business and;
  • has a written contract which specifies the payment amount, including any applicable rate of pay, for services to be performed, as well as the due date of payment for such services and;
  • has a business license or business tax registration if required and;
  • maintains a business location, (may be a residence) that is separate from the business or work location of the contracting business and;
  • is customarily engaged in an independently established business of the same nature as that involved in the work performed and;
  • can contract with other businesses to provide the same or similar services and maintain a clientele without restrictions from the hiring entity and;
  • advertises and holds itself out to the public as available to provide the same or similar services and;
  • provides its own tools, vehicles, and equipment to perform the services, not including any proprietary materials that may be necessary to perform the services under the contract and;
  • can negotiate its own rates and;
  • can set its own hours and location of work and;
  • is not performing the type of work for which a license from the Contractors’ State License Board is required.
Professional Exemption – Labor Code 2783

Individuals or businesses who meet the following criteria are exempt:

  • A person or organization who is licensed by the Department of Insurance
  • A physician and surgeon, dentist, podiatrist, psychologist, or veterinarian
  • Actively licensed lawyer, architect, landscape architect, engineer, private investigator, or accountant
  • A securities broker-dealer or investment adviser or their agents and representatives
  • A direct sales salesperson.
  • A competition judge
Referral Agency Exemption – Labor Code Section 2777

This exemption applies to a referral agency which is defined as a business that provides clients with referrals for service providers to provide services under a contract, with the exception of certain services such as janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or construction services other than minor home repair.

Referrals that are included in the exemption include, but are not limited to, graphic design, web design, photography, tutoring, consulting, youth sports coaching, caddying, wedding or event planning, services provided by wedding and event vendors, minor home repair, moving, errands, furniture assembly, animal services, dog walking, dog grooming, picture hanging, pool cleaning, yard cleanup, and interpreting services.

Professional Services Exemption – Labor Code 2778

Under AB5 there is currently an extensive list of professional services that are exempt.  Labor Code Section 2778 expands the listing of professional services that may qualify for exemption from the ABC test if the following factors are met:

  • The individual maintains a business location (may be a residence) separate from the hiring entity (however, an individual may choose to perform services at the hiring entity’s location.)
  • The individual maintains a business license or business tax registration, if required In addition to any required professional licenses or permits for the individual to practice in their profession, and the work is performed more than six months after the effective date of this section.
  • The individual can set or negotiate their own rates for the services performed.
  • Outside of project completion dates and reasonable business hours, the individual can set their own hours.
  • The individual is customarily engaged in the same type of work performed under contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work.
  • The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.
“Professional services” includes the following occupations, but must meet certain specific criteria:
  • Marketing
  • Administrator of human resources
  • Travel agent services Graphic design
  • Grant writer
  • Fine artist
  • Enrolled agent licensed by the United States Department of the Treasury
  • Payment processing agent through an independent sales organization
  • Still photographer, photojournalist, videographer, or photo editor
  • Freelance writer, translator, editor, copy editor, illustrator, or newspaper cartoonist
  • Content contributor, advisor, producer, narrator, or cartographer
  • Licensed esthetician, licensed electrologist, licensed manicurist, licensed barber, or licensed cosmetologist
  • A specialized performer hired by a performing arts company or organization to teach a master class (as defined) for no more than one week
  • Appraiser
  • A real estate licensee (based on meeting other detailed criteria)
  • A home inspector (based on meeting other detailed criteria)
  • A repossession agency (based on meeting other detailed criteria)
Single Engagement Event Exemption – Labor Code 2779

This exemption shall apply to individual businesspersons who contract with one another “for purposes of providing services at the location of a single-engagement event” under the following conditions:

  • Neither is subject to control and direction by the other, in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  • Each has the ability to negotiate their rate of pay with the other individual.
  • The written contract between both specifies the total payment for services provided by both individuals and the specific rate paid to each individual.
  • Each maintains their own business location, (may be a residence).
  • Each provides their own tools, vehicles, and equipment to perform the services.
  • Each has the required business license or business tax registration if required.
  • Each is customarily engaged in the same or similar type of work performed under the contract or each separately holds themselves out to other potential customers as available to perform the same type of work.
  • Each can contract with other businesses to provide the same or similar services and maintain their own clientele without restrictions.
“Single-engagement event” means a stand-alone non-recurring event in a single location, or a series of events in the same location no more than once a week. Excluded from this exemption include services for janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or construction services other than minor home repair.
Sound Recordings Exemption – Labor Code 2780

The following occupations in connection with creating, marketing, promoting, or distributing sound recordings or musical compositions are exempt:

  • Recording artists
  • Songwriters, lyricists, composers, and proofers
  • Managers of recording artists
  • Record producers and directors
  • Musical engineers and mixers engaged in the creation of sound recordings
  • Musicians engaged in the creation of sound recordings, subject to the below
  • Vocalists
  • Photographers working on recording photo shoots, album covers, and other press and publicity purposes
  • Independent radio promoters
Any other individual engaged to render any creative, production, marketing, or independent music publicist services related primarily to the creation, marketing, promotion, or distribution of sound recordings or musical compositions.
This exemption does not apply to film and television unit production crews, working on live or recorded performances for audiovisual works, including still photographers and cinematographer or publicists who are not independent music publicists. There are numerous other specific provisions relative to recording artists, musicians and vocalist set forth in the Code which should be reviewed if applicable.
“Single-engagement live performance event” means a stand-alone musical performance in a single “venue location”, or a series of performances in the same venue location no more than once a week. This does not include performances that are part of a tour or series of live performances at various locations.
Performance Artists Exemption:

An individual performance artist, which includes, but is not limited to, an individual performing comedy, improvisation, stage magic, illusion, mime, spoken word, storytelling, or puppetry, conditioned upon the artist performing material that is their original work and creative in character and the result of which depends primarily on the individual’s invention, imagination, or talent, and instead, the determination of employee or independent contractor status are exempt and shall be governed by Borello, given all of the following conditions are satisfied:

  • The individual is free from the control and direction of the hiring entity
  • The individual retains the rights to their intellectual property
  • The individual sets the terms of work and has the ability to set or negotiate their rates
  • The individual is free to accept or reject each individual performance engagement
Construction Industry Exemption – Labor Code 2781 
Section 2775 and the holding in Dynamex do not apply to the relationship between a contractor and an individual performing work pursuant to a subcontract in the construction industry, and instead the determination of whether the individual is an employee of the contractor shall be governed by Section 2750.5 and by Borello, if the contractor demonstrates that additional criteria are satisfied.
Remedies Available
In addition to any other remedies available, an action for injunctive relief to prevent the continued misclassification of employees as independent contractors may be prosecuted against the putative employer in a court of competent jurisdiction by the Attorney General, by a district attorney, or by a city attorney in the name of the people of the State of California upon their own complaint or upon the complaint of a board, officer, person, corporation, or association.
Conclusion
In light of these significant changes to the law, businesses that have been struggling with the issue of independent contractor classification should review the new exemptions as applied to their specific industries and situations and evaluate whether an independent contractor relationship may be valid.

DISCLAIMER: Please note, the above is not an exhaustive list of all the changes to the law or resources for individuals and businesses. These new laws bring new challenges that often need to be handled on a case-by-case basis. Given the current fluid and rapidly evolving nature of the COVID-19 pandemic, this memo is provided solely as a reference tool to be used for informational purposes and is subject to change based on evolving information and it should not be construed or interpreted as providing legal advice related to any specific case or cases.

This Newsletter is intended as a brief summary of employment law. While every effort has been made to ensure the accuracy of the information contained herein, it is not intended to serve as “legal advice,” or to establish an attorney-client relationship. If additional information is needed on any of the topics contained herein, please contact our office. All rights reserved. ©2020.