In our September 2019 Alert, we wrote about AB-5, the landmark bill in employment law regarding the classification of workers as employees or independent contractors in California. A year later, we examine a new bill, AB-2257, recently enacted by the California Legislature and signed by Governor Newsom, which amends AB-5 and continues the evolution of the employee/independent contractor definition in the state.
AB-5 Codified New Guidelines for Classifying Workers
To briefly review, AB-5 followed the 2018 California State Supreme Court decision in Dynamex Operations West. In Dynamex, the court adopted a so-called ABC test that makes it more difficult for employers to classify workers as independent contractors. The main change: To qualify as an independent contractor, the worker must be performing work that is outside the usual course of the employer's business. AB-5 codified the Dynamex test, with two main areas of amendment:
- Around 20 occupations were set out as exempt from the Dynamex test and held to the previous Borello standard-a standard that provided greater flexibility for businesses seeking to classify workers as independent contractors.
- A general exemption was provided for "business-to-business" contracting, but only if the business service contractor and provider met a number of criteria, which include the requirement that the business service provider provides services directly to the contracting business, rather than to customers of the contracting business.
AB-2257 Exempts Nearly 30 Occupations from the ABC Test, Provides More Flexibility for Business-to-Business Exemption
AB-5 was one of the most hotly contested bills in the 2019 legislative session, opposed not only by most industry associations but also by a wide range of independent contractors and freelancers. Immediately after it was enacted, efforts were undertaken to amend it. AB-2257 went through several iterations, with the final result being three main areas of change to AB-5.
Expansion of Exempt Occupations
The California Legislature decided to deal with the AB-5 opposition partly by adding a lengthy list of 30 or so additional occupations exempt from the Dynamex test?expanding the list of approximately 20 occupations already included in AB-5. These occupations are now held to the previous Borello standard. Chief among the new occupation exemptions added are:
- A series of occupations related to the music industry and the "creating, marketing, promoting or distributing of sound recordings or musical compositions," including recording artists, songwriters, managers of recording artists, record producers and directors, vocalists and photographers working on recording photo shoots.
- A series of occupations related to film and television production.
- Registered professional foresters.
- Licensed landscape architects.
- Home inspectors and real estate appraisers.
- Digital content aggregators and photo editors.
- Youth coaches and tutors.
Restrictions on Some Previously Exempt Occupations Eliminated
Workers in a number of occupations included in the AB-5 exemptions regarded these exemptions as too narrowly tailored. This was especially the case among freelance writers and photographers, whose exemption allowed only up to 35 submissions in a year to a single publisher. The writers and photographers launched an extensive campaign to repeal the limit on submissions, and AB-2257 eliminates the 35 per-year limit.
B2B Exemption Gains Flexibility
The business-to-business exemption is loosened to allow two independently recognized businesses to contract, even if the second business is providing services to other customers. It also now allows a business to qualify for the exemption if it has the opportunity to contract with other businesses, and does not require that the business in fact have other business clients.
Companies Doing Business in California Going Forward
AB-2257 will not end the disputes over worker classification in California. In the week after its passage, a number of business groups and independent contractors already have come forward to describe its changes as insufficient to address California's complex economy. Companies will want to continue to track the legislative activities.
Further, the AB-2257 exemptions, like those of AB-5, are highly fact-specific. Companies will want to start with the general AB-5 and AB-2257 categories, but also review the individual details of each worker arrangement. Additionally, the changes to the business-to-business exemption have loosened requirements to be exempt but also left some central issues unanswered. Here too, the nature of the individual business relationships needs to be carefully reviewed in light of the facts of each contemplated relationship. If the application of one of the exemptions is not readily apparent, or additional questions arise (even under the more flexible Borello standard), counsel should be involved to help minimize the risks associated with misclassification under these complex rules.
For More Information
If you have any questions about this Alert or the process and work duty changes needed to comply with AB-5 and AB-2257, please contact Michael S. Bernick, James S. Brown, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group, or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.