As readers of this blog know, one year ago California’s Governor signed AB 5 into law, which mandated the “ABC Test” for determining whether a worker was an employee or an independent contractor. The signing of AB 5 into law was a watershed moment for California businesses and workers because the new “ABC Test” was going to make it hard – if not impossible – for many workers in many industries to be considered “independent contractors.” We blogged about AB 5 here, and the California Supreme Court decision back in 2018 that first announced the “ABC Test” here.
Following the signing of AB 5 into law, the internet exploded with headlines bemoaning the ruin of everything from the gig economy to Silicon Valley to the stock market. Uber and Lyft responded to the signing of AB 5 with a massive lawsuit against the State of California, claiming that AB 5 was unconstitutional. Several months later, the State of California responded by suing Uber and Lyft, claiming the ride-share companies were intentionally violating California law by classifying their drivers as “independent contractors” rather than employees. In response to that lawsuit, Uber and Lyft retaliated against the state by pouring $184.3 million (and counting) into Prop 22, a ballot measure that will appear on the November 2020 ballot. If passed by the voters, Prop 22 would specifically classify app-based drivers as “independent contractors” rather than employees, thus nullifying the state’s efforts to use AB 5 to make their Uber and Lyft drivers employees.
What Does AB 2257 Do?
With these disputes raging, on September 4, 2020 Governor Gavin Newsom signed a new law, AB 2257, that goes into effect immediately and makes numerous industry-specific changes to AB 5’s reach. For example, AB 2257:
- Expands the “professional services” exemption to AB 5
In addition to the list of “professional services” occupations that are already exempt from AB 5, now there are additional exempt professional services as a result of AB 2257. The newly exempt professional services include content contributors, advisors, producers, narrators, cartographers, specialized performers hired to teach a master class for no more than one week, licensed landscape architects, registered professional foresters, digital content aggregators, real estate appraisers, home inspectors, certain aestheticians, and individuals who provide underwriting inspections, premium audits, risk management, or loss control services to insurance companies and/or financial institutions. In addition, AB 2257 eliminates the “cap” of 35 submissions on freelance writers and photographers so that they can now submit freely without being automatically considered an “employee.” But now, as a result of AB 2257, to qualify for this new exemption, freelance writers and photographers must have a written contract that specifies the “rate of pay” and intellectual property rights in advance, they must not perform the work at the hiring entity’s location, and they may not be restricted form working for other hiring entities.
- Clarifies and expands the existing business-to-business (B2B) exemption to AB 5
AB 5 currently contains a B2B exemption that applies to “bona fide business-to-business contracting relationships” where a worker “acting as a sole proprietor or as a business entity…contracts to provide services to another such business.” Now, as a result of AB 2257, this B2B exemption also applies to agreements between a worker and a “public agency or quasi-public agency.” In addition, as a result of AB 2257, the B2B exemption also now applies to individual businesspersons who contract with one another “for purposes of providing services at the location of a single-engagement event,” provided that certain conditions are met.
- Clarifies and expands the scope of the “referral agency” exemption to AB 5
The current referral agency exemption to AB 5 applies to the relationship between a service provider and a referral agency if certain conditions are met. AB 2257 now applies this referral exemption to an additional list of services, including language interpreting, certain consulting services, and youth sports coaching. AB 2257 also now makes clear that the referral exemption does not apply to referrals for services in certain “high hazard” industries or for referrals for businesses that provide janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or construction services (other than minor repair).
- Creates new exemptions from AB 5 for the entertainment industry
AB 2257 creates a new exemption from AB 5 for certain individuals involved in creating, marketing, promoting, or distributing sound recordings or musical compositions, including recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, music engineers, sound mixers, musicians engaged in the creation of sound recordings, vocalists, and photographers working on album covers. In addition, AB 2257 grants a new exemption to AB 5 for musicians and musical groups engaged for a single live performance, unless they (a) perform as a symphony orchestra, in a musical theater production, at an amusement park, or as a tour of live performances; (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.
- Creates new exemptions to AB 5 for certain individual performance artists
AB 2257 also establishes a new exemption for performance artists (e.g., comedians, improvisers, magicians, storytellers, mimes, puppeteers) who perform material that is their own original work for which they retain the intellectual property rights and have full artistic control, except for those individual performers who are subject to the control and direction of a hiring entity.
- Creates various new, miscellaneous exemptions to AB 5
Finally, AB 2257 establishes new exemptions to AB 5 for manufactured housing salespersons, competition judges with specialized skill sets, amateur umpires and referees, certain animal services workers, certain individuals involved in international exchange visitor programs, and certain specialized performers hired to teach a master class for no more than one week.
Which Industries Were Left Out of AB 2257 – And Thus Have No Exemption to AB 5?
Curiously, AB 2257 does not include any exemptions for several high profile California industries who lobbied hard for them. There are no exemptions for Uber, Lyft, or other app-based drivers; no exemptions for other gig economy occupations; no exemptions for the motion picture and television industry; and no exemptions for the trucking or transportation industry.
For some of these left-out industries, they will continue lobbying the California legislature and look for exemptions to be added to AB 5 in future bills. For others, they will undoubtedly sue the state and make a variety of legal arguments that AB 5 is unconstitutional or conflicts with some more important, “supreme” federal law (just as the trucking and transportation industry has done). Still others, especially those in the gig economy, will likely throw their support behind the Prop 22 campaign in the hopes that voters are more friendly to their concerns than legislators.
What Should California Workers and Businesses Do Now?
AB 2257 was drafted as “emergency legislation;” thus, it became the law the minute the bill was signed by Governor Newsom. So all California businesses should be aware of all of these new and expanded exemptions to AB 5.
Businesses should also understand that, just because a particular worker may be in an industry that is now exempt from AB 5, that worker does not automatically become an “independent contractor.” Instead, an exemption means only that the worker is exempt from AB 5, which means the worker is exempt from the “ABC Test,” which means that test for determining whether the worker is an employee or independent contractor will come from the prior law before AB 5, which for most situations is the 11-factor analysis first announced in 1985 in the seminal S.G. Borello & Sons case. You can read more about the 11-factor S.G. Borello & Sons test here (see question #5).
Whether trading a 3-factor “ABC Test” for an 11-factor S.G. Borello & Sons test is a “victory” for either side – the worker or the hiring entity – is yet to be seen. It muddies the waters for sure by expanding the number of factors to be considered, and it provides far less clarity and certainty for all sides – which means it will likely lead to more litigation, more audits, and more second-guessing by government agencies. Does anyone “win” in that scenario?
But for now, what’s obvious is that lobbyists in California are being paid handsomely and working overtime to get their clients exempted from AB 5. The proof of that intense lobbying effort, and the underlying fear of AB 5’s “ABC Test” that it represents, is found in the seemingly random and nearly endless mish-mash of new exemptions found in AB 2257.
You can read the full text of AB 2257 here.