With the passage, executive signature, and immediate enactment of Assembly Bill 2257 (AB 2257), businesses must once again adapt to another drastic shift in the employee classification calculus. On September 4, 2020, AB 2257, which substantially revises and clarifies California’s independent contractor laws, went into effect immediately upon receiving California Governor Gavin Newsom’s signature. AB 5, as businesses are all too aware, installed the “ABC Test” as the default standard for determining whether independent contractors should be treated as employees of a hiring entity, and also set forth a labyrinthine list of exemptions from its purview.
AB 2257 preserves the ABC Test for independent contractor classification, but it also expands the universe of available exemptions from this test. The new law will no doubt delight some businesses, frustrate others, and confound anyone responsible for keeping track of the exemptions. AB 5, which took effect on January 1, 2020, codified the ABC Test for employee status adopted in the California Supreme Court’s 2018 decision in Dynamex Operations West v. Superior Court. In Dynamex, the California Supreme Court held that in order to defeat claims arising under California’s Wage Orders premised on independent contractor misclassification, a defendant must prove that: (A) the worker is free from control and direction of the hiring entity in connection with performing the work, both under contract and in fact; (B) the worker performs work outside the usual course of the hiring entity’s business; and (C) the worker customarily engages in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
AB 5 expanded the reach of the Dynamex decision by making the ABC Test the default test for all Labor Code, Unemployment Insurance Code and Wage Order claims. As a result, application of the ABC Test was extended to a host of additional causes of action to which it previously did not apply, such as, for instance, claims for failure to reimburse necessary business expenses and failure to provide accurate wage statements. In addition to expanding the applicability of the ABC Test, AB 5 also provided for broad governmental enforcement powers. It enabled the Attorney General and certain city attorneys to pursue injunctions against businesses suspected of misclassifying independent contractors.
AB 5 also contained numerous statutory exemptions from the ABC Test. Provided certain criteria were met, the employment status of independent contractors in an occupation covered by one of these exemptions was determined by the common law test for employment (commonly known as the Borello test), a considerably more flexible standard than the ABC Test. The fact that some industries were exempted while others were not, led to controversy, confusion, and requests from hiring entities and workers in dozens of industries for additional and clarifying legislation. As of February of this year, the Legislature has introduced 34 stand-alone bills exempting certain industries. As those measures wound through the legislative process, they were, for the most part, distilled into AB 2257.
What’s new in AB 2257? It maintains the essential framework of AB 5 and the ABC Test remains the default standard for independent contractor misclassification, however, as a result of swift and concerted lobbying efforts, a plethora of new statutory exemptions from the ABC Test, which apply retroactively where applicable, are now available. In addition, some of the existing exemptions have been altered in potentially significant ways.
The Business-To-Business Exemption maintains the exemption for “bona fide business-to-business contracting relationships” where a contractor, acting as a sole proprietor, or a business entity formed as a partnership, a limited liability company or partnership, or a full corporation, contracts to provide services to another such business. The exemption now also applies where a “public agency or quasi-public corporation” has retained a contractor. However, in addition to broadening the availability of the exemption, AB 2257 also extends the application of the ABC Test to individual workers retained by a contractor, with respect to their relationships with both the contractor and the hiring entity. In other words, the ABC Test will determine whether a worker retained by a contractor, and not directly by the hiring entity, is an employee of the hiring entity. This could prove to be a significant change, as it seems to conflict with traditional principles of joint employment.
The Single-Engagement Business-To-Business Exemption creates an exemption from the ABC Test for individual persons who contract with one another for purposes of providing services at the location of a single-engagement event. Provided certain criteria are met (including a lack of control over the work, a written contract specifying payment amounts, and each individual’s maintenance of his or her own business location), the ABC Test will not apply where one individual contracts with another to perform services at “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.”
The Referral Agency Exemption expressly applies an exemption to a non-exclusive list of additional services, including consulting, youth sports coaching, caddying, wedding or event planning, services provided by wedding and event vendors and interpreting services.
The Professional Services Exemption exempts the following occupations – content contributors, advisors, producers, narrators, or cartographers for certain publications (provided they do not displace existing employees). It also exempts specialized performers hired to teach a class for no more than a week, registered professional foresters, appraisers, and home inspectors.
The Music Industry & Performer Exemptions create several exemptions for the entertainment industry, primarily in the music industry. First, the following occupations involved in creating, marketing, promoting or distributing sound recordings or musical compositions are exempt from the ABC Test, including 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.
Some miscellaneous exemptions include manufactured housing salespersons, certain individuals engaged by international exchange visitor programs, and competition judges (including amateur umpires and referees). AB 2257 also provides district attorneys the ability to file an injunctive relief action against businesses that are suspected of misclassifying independent contractors. Previously, only the Attorney General and certain city attorneys possessed this power.
To qualify for the “business-to-business” exemption, contracts should be between legitimate, full-scale businesses. Where possible, avoid contracting with single individuals or “fly-by-night” operations. Contracting businesses should consider requiring contractors to submit business cards or other advertising/marketing materials establishing that the contractor holds itself out to the public as available to provide the services for which it is being engaged. One thing you can do to help legitimize your business is to advertise in a trucking publication, such as 10-4 Magazine, or in the NTA’s Trucking Directory. Call us at (562) 279-0557 for more details!