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September 2020

AB 2257 Further Modifies California’s Controversial Independent Contractor Regulations in AB 5

On September 4, 2020, California further modified its already controversial Assembly Bill (“AB”) 5, which was a landmark piece of legislation drastically altering the legal landscape for independent contractor relationships, by enacting AB 2257.  As a reminder, AB 5 codified the so-called ABC Test established in the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court.[1] AB 2257’s modification of AB 5 means that businesses operating in California have had all of eight months to adapt to AB 5’s mandates since its effective date of January 1, 2020, only to now be met with further shifts in the employee classification calculus.

What Does AB 2257 Do?

Chiefly, AB 2257 largely preserves the ABC Test for independent contractor classification, and thus the essential framework of AB 5.  However, AB 2257 modifies some of AB 5’s exemptions to the ABC Test, primarily for creative and artistic industries. A summary of the changes by type of worker is below.

  • Photographers, photojournalists, videographers, photo editors, freelance writers, edits, copy editors, illustrators, and newspaper cartoonists are no longer limited in the number of submissions they can produce before triggering the need to be classified as an employee.
  • Content contributors, advisors, producers, narrators, cartographers for certain publications, specialized performers hired to teach a class for no more than one week, appraisers, registered professional foresters, and home inspectors may now be subject to a lesser classification test (i.e., the Borello 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 are now exempt from the ABC Test.
  • Musicians and members of musical groups are now exempt from the ABC Test for single-event performances unless they: (1) perform as a symphony orchestra, in a musical theater production, or at a theme or amusement park, (2) are an event headliner in a large venue seating more than 1,500 attendees, or (3) perform at a large festival that sells more than 18,000 tickets per day.
  • Comedians, improvisers, magicians and illusionists, mimes, spoken-word performers, storytellers, and puppeteers of original works are exempt from the ABC Test so long as they: (1) are free from the hiring entity’s control, (2) retain intellectual property rights related to their performance(s), and (3) set their terms of work and negotiate their rates.
  • Manufactured housing salespersons, certain individuals involved with international exchange programs, and competition judges are generally exempt from the ABC Test.
  • Inspectors for insurance underwriting are also exempt from the ABC Test.

What Does AB 2257 Not Do?

More telling, perhaps, are the aspects of AB 5 that are unchanged by AB 2257, which are summarized below:

  • Musicians and vocalists who do not receive royalties must be paid as if they were employees;
  • No new exemptions for the trucking industry, gig economy companies (industries with temporary positions for short-term commitments), or the motion picture and television industries;
  • Proposition 22[2] remains on the ballot for this November; if passed, it would create special employment rules for drivers working for app-based ride-share and meal delivery services;
  • Even if an exemption applies, the Borello multi-factor test must still be applied to determine the worker’s status.

What Can Employers in California Expect?

AB 2257 took effect immediately upon its passage on September 4, 2020, and is now the law of the State of California. The industries that did not secure an exemption will undoubtedly continue to lobby legislators. Others will likely choose to follow the lead of transportation platform companies which are currently funding Proposition 22.  Finally, it is to be expected that lawsuits will follow[3], and may yet affect the scope of AB 2257’s application.

Recommendations for Employers

Despite the Legislature’s intent that AB 2257 provide further clarification as to who can be classified as an independent contractor rather than an employee, the law remains convoluted and unclear to many employers. Therefore, employers should be very careful in classifying a worker and should work with their attorneys to carefully evaluate each worker’s position to determine whether he or she should be classified as employee or independent contractor.

[1] Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 created the default employment classification standard for all Labor Code, Unemployment Insurance Code, and Wage Order claims. Under this standard, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the enumerated conditions: (A) 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; (B) the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

[2] Proposition 22 would consider app-based drivers to be independent contractors and not employees or agents. Therefore, Prop 22 would override AB 5 that established the ABC Test to decide a worker’s status as an independent contractor.

[3] Such as the California Trucking Association’s lawsuit attempting to block AB 5 currently pending before the 9th Circuit Court of Appeals asking the Court to keep in place a lower federal court’s preliminary injunction.

Employment Law

Brandon D. Saxon

Employment Law