AB 5, as of January 1, 2020, codified the ABC Test for employee status adopted in the California Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court. Dynamex 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 Dynamex by making the ABC Test the default test for all Labor Code, Unemployment Insurance Code, and Wage Order claims. As a result, the ABC Test extended to a host of additional causes of action not previously covered, such as, for instance, claims for failure to reimburse necessary business expenses and for failure to provide accurate wage statements.
What’s New In AB 2257?
AB 2257 maintains the essential framework of AB 5. The ABC Test remains the default standard for independent contractor misclassification. However, swift and concerted lobbying efforts have prompted a plethora of new statutory exemptions from the ABC Test, which apply retroactively where applicable. In addition, some existing exemptions have been altered in potentially significant ways.
- 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.” The exemption now also applies where a “public agency or quasi-public corporation” has retained a contractor. Further, while broadening the availability of the exemption, AB 2257 might also affect how the ABC Test applies to individual workers retained by a contractor, with respect to their relationship with both the contractor and the hiring entity. For example, the ABC Test might determine whether an individual worker retained by a contractor as an independent contractor, and not directly by the hiring entity, is an employee of both the contractor and the hiring entity. While case law holds that the ABC Test does not apply where a worker has been classified as an employee, the unclear phrasing of the new business-to-business exemption could lead to litigation on this subject.
- “Single-Engagement” 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 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.”
- Referral Agency Exemption: AB 2257 also 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. For starters, AB 2257 expands the referral agency exemption significantly, expressly applying the 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. Indeed, according to the Senate Committee on Labor and Employment analysis, the referral agency expansion was one of the most significant changes in AB 2257. In addition to expanding the scope of the exemption, AB 2257 expressly provides that the ABC Test governs “the determination of whether an individual worker is an employee” of the contractor referred to provide services, or an employee of the client to which the contractor was referred. As with the analogous clarification of the business-to-business exemption, this is a potentially significant addition in that it may lead to litigation over whether the ABC Test applies to workers who have been classified as employees.
- Professional Services Exemption: AB 2257 expands the already lengthy list of occupations that may qualify for an exemption from the ABC Test under the professional services exemption. The following occupations, in addition to those originally identified in AB 5, may be subject to the common law test for employment as a result of AB 2257: content contributors, advisors, producers, narrators or cartographers for certain publications (provided they do not displace existing employees); specialized performers hired to teach a class for no more than a week; appraisers; registered professional foresters; and home inspectors. AB 2257 also eliminates restrictions in AB 5 that threatened to upend the journalism industry. Whereas AB 5 limited 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/newspaper cartoonists) could publish in a single forum without sacrificing their contractor status, AB 2257 removes the submission cap and instead requires that businesses refrain from displacing existing employees in order to utilize one of these types of contractors.
- Music Industry & Performer Exemptions: AB 2257 creates 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: 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. Notably, however, musicians and vocalists who do not receive royalties from a sound recording or musical composition must be paid the applicable minimum and overtime wages, as though they were employees. Second, musicians and musical groups engaged for a single-engagement live performance event (i.e., a concert) are exempt from the ABC Test unless they (a) perform as a symphony orchestra, or in a musical theater production, or at a theme park or amusement park, (b) are an event headliner in a venue with more than 1,500 attendees, or (c) perform at a festival that sells more than 18,000 tickets per day. Finally, individual performance artists including comedians, improvisers, magicians and illusionists, mimes, spoken word performers, storytellers, and puppeteers who perform original work they created will qualify for an exemption so long as they are free from the hirer’s control, retain the intellectual property rights related to their performance, set their terms of work and negotiate their rates.
- Miscellaneous Exemptions: Subject to certain requirements, AB 2257 adds exemptions for the following occupations: manufactured housing salespersons; certain individuals engaged by international exchange visitor programs; and competition judges (including amateur umpires and referees).
- Broader Governmental Enforcement Powers: AB 2257 provides district attorneys the ability to file an injunctive relief action against businesses suspected of misclassifying independent contractors. Previously, only the Attorney General and certain city attorneys possessed this power.