CALIFORNIA MODIFIES LANDMARK WORKER CLASSIFICATION LAW

9/10/2020

by Julie Martel

On September 4, 2020, Governor Gavin Newsom signed into law AB 2257, modifying AB 5 —California’s landmark worker classification law — to exempt additional occupations and business relationships from AB 5’s stringent “ABC test” for classifying workers as independent contractors.  The law goes into effect immediately and applies retroactively to the extent that it relieves an employer from liability for misclassification of a worker. 

BACKGROUND

AB 5, which went into effect January 1, 2020, codified a California Supreme Court decision that made classifying workers as independent contractors, versus employees, more difficult.  In Dynamex Operations West, Inc. v Superior, the Court adopted a three-part “ABC” test for determining whether a worker is entitled to wage and hour protections under the state’s Industrial Welfare Commission’s Wage Orders.[1]  AB 5 extended the ABC test beyond just the Wage Orders to the Labor Code and the Unemployment Insurance Code, which cover paid sick leave, workers’ compensation, and state-administered benefits such as unemployment insurance, state disability and paid family leave benefits. 

AB 5 exempted certain occupations and business relationships from the application of the ABC test, instead providing those occupations and relationships are governed by the more flexible multi-factor balancing test adopted 30 years ago in a case called S.G. Borello & Sons, Inc. v. Department of Industrial Relations (“Borello”).  The Borello test focuses on, among other factors, the hiring entity’s control over the work details; whether the worker performing services is engaged in an occupation or business distinct from the principal; and whether or not the work is part of the regular business of the hiring entity.

AB 2257

Since passage of AB 5, numerous businesses have lobbied for exemption from the ABC test in favor of the less onerous Borello test.  In response, AB 2257 expands the list of statutory exemptions from the ABC test to include a wide-ranging list of occupations, including: content contributors, advisors, producers, narrators or cartographers for certain publications (provided they do not displace existing employees and do not primarily work at the hiring entity’s business location); certain specialized performers hired to teach a master class for no more than one week; appraisers; registered professional foresters; home inspectors; manufactured housing salespersons; certain individuals engaged by international exchange visitor programs; competition judges; certain data aggregators; insurance and financial service underwriters, inspectors, premium auditors, and risk management and loss control workers; licensed landscape architects; newspaper distributors and carriers; individuals performing services pursuant to a contract between a motor club and a third party; and various individuals working in the entertainment and music industries.

Additionally, AB 2257 adds an exemption from the ABC test for business-to-business relationships 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,” 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 law also expands AB 5’s referral agency exemption to include additional services, such as consulting, youth sports coaching, caddying, wedding or event planning, services provided by wedding and event vendors, and interpreting services. 

AB 2257 also modifies the statutory exemptions originally included in AB 5 in several respects.  For example, AB 2257 eliminates the restriction on the number of “submissions” that independent contractors of various types (including still photographers and photojournalists, videographers, photo editors, freelance writers, translators, editors, copy editors and illustrators, and newspaper cartoonists) could publish in a single forum without jeopardizing their independent contractor status, as long as the contractor does not displace an existing employee of the hiring entity, the contractor does not primarily perform work at the hiring entity’s business location, and the contractor is not restricted from working for more than one hiring entity.

AB 2257 also loosens the criteria for determining whether the ABC test applies to a certain business-to-business contracting relationships.  Under AB 5, the ABC test applied unless (among other factors) the party providing services actually contracts with other businesses to provide the same or similar services.  Under AB 2257, the party providing services no longer has to actually contract with other businesses, as long as the party can contract with other businesses.

LOOKING AHEAD

There is no doubt that many industries that were overlooked in AB 2257 will continue to lobby for exemption from the ABC test, which may result in additional bills in the future modifying AB 5.

Some businesses have chosen to make their case directly to the people.  Chief among those include the ridesharing companies Uber and Lyft, as well as delivery services such as DoorDash.  These companies are the primary supporters of Proposition 22, which is currently on California’s November 3rd ballot.  If passed, Proposition 22 would specifically define app-based transportation (rideshare) and delivery drivers as independent contractors.

Please note that this summary is not intended to constitute legal advice. If you have questions regarding compliance with these new California laws or other employment laws, please feel free to contact Kristin Pedersen, Maki Daijogo or Julie Martel at Daijogo & Pedersen by emailing us at [email protected], [email protected] or [email protected], or by calling us at 415.924.9400.


[1] Under the ABC test, in order to be properly classified as an independent contractor, the hiring entity must prove all of the following: (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.