Question:

I’ve been hearing a lot about Dynamex, AB 5, and now AB 2257 in California. What are these phrases and why do they matter?

Answer:

These are all terms you’ll hear tossed around when you talk about independent contractor classification in California. Dynamex was a pivotal California Supreme Court case that paved the way for the California state assembly bill known as AB 5. Fun fact: the “AB” stands for “assembly bill.”

AB 5 has been hotly debated since the time it was introduced. This brings us to AB 2257,  which was written in an effort to loosen AB 5’s provisions. But we’re getting ahead of ourselves. Let’s break down the previous independent contractor classification structure in California and what’s been happening up until this point.

Recapping California Independent Contractor Law

Before 2018, the California test for independent contractor classification was a multifactor test under a court case known as “Borello.” This is why you’ll often hear mention of the Borello Test any time worker classification is a topic of conversation.

Under the Borello Test, a court would presume that a worker was an employee; however, this was a rebuttable presumption, meaning that an employer could argue that the worker was actually an independent contractor if enough of the Borello factors were present and in favor of the hiring party. So let’s talk about how those factors worked, shall we?

The actual determination of whether a worker was an employee or independent contractor would depend upon thirteen factors (this is also sometimes cited as an eleven factor test), including the kind of work being performed, whether the worker was specially skilled, the permanence of the work, and even whether the parties understood the relationship to be that of an independent contractor relationship.

All of the factors were considered, but none of these were controlling by themselves. This is important, because it means it was a highly fact and industry specific based inquiry; that means a lot of variance between industries. If more factors looked like there was independence for the worker, the more likely it was to be a contractor; less independence meant it was more likely to be an employee.

The Dynamex Decision

But in April of 2018, everything changed. The California Supreme Court handed down Dynamex Operations West v. Superior Court, and with this case came the ABC test, a three factor test which is used in other states like Massachusetts and New Jersey. Under Dynamex, the court presumes that a worker is an employee unless an individual satisfies all three factors of the new ABC test. The factors are:

Factor A: That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact. In layman’s terms: the would-be employer doesn’t control how the worker works, where they work, and when they work.

Factor B: That the worker performs work that is outside the usual course of the hiring entity’s business; In layman’s terms: the work that the worker performs is not essential to the work the would-be employer’s business does.

Factor C: That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. In layman’s terms: the worker performs this work for others, not just the would-be employer.

We’re not going to go too far into these factors, because we’re just recapping. What you basically need to know here is that, because a worker is an employee unless they meet each of these three factors, it’s generally more difficult for a hiring party to rebut the presumption; Borello is more flexible.

But if we’ve piqued your interest and you have more questions about the factors, remember that we offer free 30-minute consultations. If you’d like to chat about these factors, send an email to bertie@inbetterwetrust.com!

Exemptions Under AB 5

This is where AB 5 comes into play. Dynamex is “case law,” meaning it’s law created by courts and judges, and this is different from “statutory law,” which is law created by legislators. Both are enforceable, but statutory law is often seen as more of a voice of the people, because it’s created by elected officials in the legislature. After Dynamex was handed down, California’s legislature passed AB 5, which doubles down on case law and “codifies” it as the current law.

In creating statutory law, there is also room to fill in the holes left by the courts. That’s exactly what happened with AB 5! Not only did it solidify that AB 5 would be the law of the land in California, it also explained that certain professions and industries would not be required to use the ABC test as the classification test for their workers, the latter of which wasn’t part of the original Dynamex decision. These industry carve outs are known as the “exemptions” to AB 5, and they’re pretty important.

The original exemptions of AB 5 are important because (1) there weren’t very many, in the grand scheme of every industry out there; and (2) some of them were very vague or unclear in how they would apply. For example, “fine artist” was one of the original exemptions, but it was not defined. Who is a fine artist? What type of art is considered fine art? See what we mean?

This led to a lot of confusion for some industries that weren’t sure if they qualified for an exemption, and frustration for the industries that were simply not included. The outcry and debate over AB 5 was immense, leading lawmakers to consider amending the law to loosen the restrictions it put in place. Enter AB 2257….

AB 2257 In a Nutshell

As early as February 2020 (that’s right, only a month after AB 5 went into effect), over thirty proposals had been introduced to correct the perceived flaws of AB 5, or even to outright repeal it! Eventually, AB 2257 emerged as thee bill, and was signed into law by Governor Gavin Newsom on September 4, 2020, almost exactly nine months after AB 5 originally took effect. It’s important to note that this bill was written with an urgency clause built in, which means it takes effect immediately upon signature.

AB 2257 adds, edits, or clarifies certain exemptions listed in AB 5. We’ll get into those now!

Which Exemptions Still Stand

1. Under the professional services exemption, there are quite a few exemptions for specific industries that are still standing. These industries include:
   • • Marketing;
     • Administrator of human resources;
     • Travel agent;
     • Graphic design;
     • Grant writer;
     • Fine artist (although they’ve finally added a definition here!);
     • Enrolled agent licensed to practice before the IRS;
     • Payment processing agent;
     • Licensed esthetician, electrologist, manicurist, barber, cosmetologist (subject to certain terms); and
     • Real estate licensee.
2. Individuals in the construction industry (subject to certain terms);
3. Insurance licensees;
4. Licensed physicians, surgeons, dentists, podiatrists, psychologists, or veterinarians;
5. Licensed lawyers, architects, engineers, private investigators, or accountants;
6. Securities broker-dealer or investment advisers;
7. Direct sales salesperson;
8. Commercial fisher; and/or
9. Services provided to motor clubs.

Which Exemptions Were Substantially Updated

1. The bona fide business-to-business contracting relationship exemption has been updated in a few ways, including explaining when an independent contractor may provide services directly to the clients or customers of the contracting business.
2. The referral agency exemption has been updated, with a wider definition of what is considered a referral agency, by striking the existing limitations on the referral agency language and opening the exemption to other industries, except for in the case of the following industries, which cannot utilize this exemption:
   • • Agriculture;
     • Retail;
     • Janitorial;
     • Construction;
     • Delivery;
     • Courier;
     • Transportation services; and
     • High hazard industries, as defined under existing law.
3. The professional services exemption was clarified in a number of ways, by specifying additional professions that may utilize the exemption and updating existing professions.
   • • Additions include services provided:
       • To a digital content aggregator provided by a still photographer, photojournalist, videographer, or photo editor;
       • By an individual as a content contributor, advisor, producer, narrator, or cartographer for a journal, book, periodical, evaluation, other publication or educational, academic, or instructional work in any format or media;
       • By a specialized performer hired by a performing arts company or organization to teach a master class for no more than one week;
       • By an appraiser;
       • By a registered professional forester;
       • By a home inspector; and/or
       • By a repossession agency.
     • Updates were made to the following existing professions:
       • Still photographer, photojournalist, videographer, or photo editor (subject to certain terms);
       • Freelance writer, translator, editor, copy editor, illustrator, or newspaper cartoonist (subject to certain terms).
         • Note: for both of these sets of professions, the previously existing annual 35 submissions cap is now gone. There is no longer a cap of any kind applicable to these professions.

Which Exemptions Were Added From Scratch

1. There is a general exemption for individuals or businesses performing work for single-engagement events;
2. There is also a specific exemption for musicians or musical groups performing single-engagement live events (subject to certain conditions);
3. Occupations in connection with creating, promoting, or distributing sound recordings or musical compositions get an exemption. This specifically includes the following occupations:
   • • Recording artists (subject to certain terms);
     • Songwriters, lyricists, composers, and proofers;
     • Managers or recording artists;
     • Record producers and directors;
     • Musical engineers and mixers;
     • Musicians engaged in sound recording (subject to certain terms);
     • Vocalists (subject to certain terms);
     • Photographers working on recording photo shoots, album covers, and other press and publicity purposes;
     • Independent radio promoters; and/or
     • Any other individual engaged to render creative, production, marketing, or independent music publicist services.
     • Note: this bill specifically states that film and television unit production crews cannot take advantage of this exemption.
     • Neither can publicists who are not independent.
     • And if you’re subject to a collective bargaining agreement, that throws a wrench in things, too!
4. Individual performance artists (subject to certain terms) are covered;
5. Data aggregation relationships are covered;
6. Landscape architects have been added to the list of licensed occupations, which is important– anyone attempting to utilize this exemption must be licensed;
7. Manufactured housing salesperson have been added to the list;
8. And so have newspaper distributors, which could include anyone with a paper route! Cute;
9. Don’t forget individuals engaged by an international exchange visitor program; and/or
10. Competition judges with specialized skill sets or expertise, including umpires and referees.

Wrapping It All Up….

We know that was quite a lot to take in; we’ve tried to condense it into a quick reference guide more than an in-depth analysis. After all, a full analysis  would be one heck of a blawg post– the text of AB 2257 itself was over 25 pages when we downloaded it for our own review!

We have a feeling the debate over contractor law in California is far from over and AB 2257 will not be the last of these updates as time goes on. In the meantime, we’re here to answer any questions that you may have regarding this new update. Feel free to send an email to bertie@inbetterwetrust.com to schedule a free 30-minute consultation to discuss!