HR Hot Topic – New Legislations Regarding Independent Contrators

Assembly Bill 2257, which went into effect immediately upon passage, expands the exemptions under AB 5 concerning independent contractor status.

AB 5 Recap

AB 5 solidified the use of the ABC Test for employee status adopted in the California Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court.

The ABC test presumes a worker is an employee and places the burden on the hiring entity to demonstrate otherwise. To establish that a worker is an independent contractor, a hiring entity must prove all of following three elements:

• Part A: The worker is free from the hiring entity’s control and direction in connection with his/her performance of the work, both under the contract for performance of the work and in actually performing the work;
• Part B: The worker performs work that is outside the usual course of the hiring entity’s business; and
• Part C: The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

If the hiring entity fails to show that the worker satisfies each of the three elements, the worker is treated as an employee, not as an independent contractor.

AAB 2257 Overview

AB 2257, at the core, does not change the use of the ABC Test for independent contractor status. Rather, it allows for new statutory exemptions and alters some existing exemptions. Notable exemptions are as follows:

• Section 2776: Business-To-Business Exemption: AB 2257 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, limited liability company, limited liability partnership or corporation contracts to provide services to another such business; also, where a “public agency or quasi-public corporation” has retained a contractor.

• Section 2777: Referral Agency Exemption: AB 2257 includes clarifications of the referral agency exemption, which may exempt from the ABC Test the relationship between an individual operating as a sole proprietor or a business entity and a business that refers that individual’s services to clients. The exemptions include graphic design, web design, photography, consulting, youth sports coaching, caddying, wedding or event planning, services provided by wedding and event vendors, and others. The referral agency expansion was one of the most significant changes in AB 2257.

• Section 2778: Professional Services Exemption: AB 2257 expands the list of occupations that may qualify for an exemption from the ABC Test under the professional services exemption. AB 2257 removes the submission cap placed on certain contractors of various types such as still photographers, freelance writers and instead requires that businesses refrain from displacing existing employees who performed the same work at the same volume as the individual providing the services.

• Section 2779: “Single-Engagement Event” Business-To-Business Exemption: AB 2257 creates an exemption from the ABC Test for individual businesspersons who contract with one another “for purposes of providing services at the location of 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 ABC Test will not apply in this instance provided certain criteria are met (including a lack of control over the work, a written contract specifying payment amounts, use of own tools, vehicles, equipment and each individual’s maintenance of his or her own business location).

Other Exemptions
Subject to certain requirements, AB 2257 adds exemptions for the following occupations: manufactured housing salespersons; certain occupations within the music industry, certain individuals engaged by international exchange visitor programs; and competition judges (including amateur umpires and referees).

Enforcement Powers Enhanced
AB 2257 provides district attorneys the ability to file an injunctive relief action against businesses suspected of misclassifying independent contractors. Previously limited to the Attorney General and certain city attorneys.

Excluded Industries
A number of industries that have lobbied for exemptions remain excluded. Such industries include, among others, gig economy companies, franchising, trucking and the motion picture and television industries. These industries will undoubtable continue their efforts.

Conclusion
The immediate task for many businesses is to understand how AB 2257’s amendments affect their business relationships.

Navigating through the constantly changing legal landscape for independent contractor status can be daunting. If your business is currently using, or is planning to use independent contractors to assist with any business needs, be sure to get legal advice to avoid making mistakes and stay compliant with the current changes.

Click to view entire AB 2257 Bill