The California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court and the subsequent passage of Assembly Bill 5 upended settled understandings regarding California’s independent contractor laws. With Proposition 22 on the ballot and ongoing reform efforts at the Capitol, the law continues to change—most recently with Governor Gavin Newsom’s signature on Assembly Bill 2257.
The “ABC” Test
The “ABC” test for independent contractor status adopted by the Supreme Court in Dynamex greatly restricted who could be classified as an independent contractor. Under this test, workers are presumed to be employees unless the hiring entity can prove each of the following factors are satisfied:
A. The individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact; and
B. the service is performed outside the usual course of the business of the employer; and
C. the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.
AB 5 codified the “ABC” test, while establishing a number of exemptions for various professions, occupations, and business relationships, such as doctors, lawyers, travel agents, and cosmetologists, with workers and relationships qualifying for an exemption instead being examined under the independent contractor test existing pre-Dynamex.
Immediately following the passage of AB 5 Lorena Gonzalez, the author of AB 5, acknowledged additional changes were needed. Also, throughout the state, there was ongoing outcry over the effects of Dynamex and AB 5 on the “gig” economy, as well as musicians, writers, photographers, freelance artists, and the newspaper industry. For example, AB 5 imposed what many considered to be arbitrary limits on the number of articles a freelance journalist or photographer could contribute per year after which they must be considered an employee, which no similar provisions applied to other exempted occupations. AB 2257, approved by the Governor on September 4, reorganizes the provisions of AB 5 and establishes carve-outs for these and other occupations.
AB 2257 retains the framework of AB 5, including the “ABC” test, and that exempted categories of work remain subject to the pre-Dynamex independent contractor test. AB 2257 modifies a number of provisions to clarify AB 5’s exemptions, and in some instances, make them less restrictive. For example, the “business to business” exemption is relaxed to permit the independent contractor to provide services directly to the hiring entity’s customers, provided they are doing so under the name of the independent contractor. The bill also made a number of revisions to the “referral agency” exception, including which types of services fall within or are excluded from its scope, such as exclusions for janitorial, delivery, retail, trucking, and in-home care services
The “Professional Services” Exception
The bill also made important modifications to the “professional services” exception, including the elimination of the arbitrary cap on the number of submissions that could be made by freelance journalists, writers, and photographers. Instead, AB 2257 provides that freelancers cannot be used to replace existing employees performing the same work at the same volume, cannot primarily work at the hiring entity’s location, and cannot be restricted from working for others. Additional exemptions are also included for persons teaching a “master class,” single engagement events, certain persons in the music and recording industries, “data aggregators,” and others.
For those entities and workers whose relationships fall within the exceptions provided under AB 2257, the law applies retroactively to any existing claims, perhaps giving some relief to those whose worker classifications fell into an area of uncertainty or are involved in litigation.
AB 2257 contains an urgency clause providing that it shall go into immediate effect. Employers using independent contractors should consult with their attorneys to evaluate their classification of workers to ensure compliance with this evolving area of the law and examine any effect on existing litigation.