Independent Contractor or Employee? With Recent Amendments to California’s AB 5 Law, The Battle Continues

Written by Jeremy Mittman and Adé Jackson 

Earlier this month Governor Newsom signed AB 2257, which was the culmination of a furious lobbying effort by specific industries (only some of which were successful) to amend California’s new independent contractor law (also known as “AB 5”). It was also considered a “cleanup” bill to tinker around the edges of the law’s requirements. 

Much of the controversy surrounding AB 5 involves its codification of the decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018), which established that a worker is an employee unless a hiring entity satisfies a three-factor (“ABC”)  test.  The law exempts certain enumerated professions from this test.  

In today’s millennial age where app-based services provide various life essentials (especially during the Covid-19 pandemic), and many Californians derive significant income from engagements with these “informal” economies, the controversy over AB 5 has been wide-ranging. As a result, AB 2257 has more relevance in California’s contemporary labor context because it increases the number of exemptions and limitations to AB 5 to over 100.  Still, it is worth noting that employers have the burden of proving that their worker relationships satisfy any of these exemptions.

Amendments Benefit The Music Industry 

One of the largest industries benefiting from these recent changes is the music industry. The recent changes introduce new exemptions that affect a wide swath of the music industry community: recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers and mixers, musicians, vocalists, photographers working in the music industry, independent radio promoters, and any other individual engaged to render creative services. The exemption created by AB 2257 establishes that the multi-factored (and more lenient) Borello test, rather than the stricter ABC test, applies in determining whether a music industry worker qualifies as an independent contractor instead of an employee.  

AB 2257 further provides that any current or future collective bargaining agreements (or other contractual agreements between labor unions and respective employers) will govern the determination of employment status for workers in the music industry. However, AB 2257 specifically notes that workers in other entertainment industries, such as film and television production, do not qualify for the exemption. 

Freelance Writers and Photographers Are Additional Beneficiaries 

AB 2257 also includes a significant win for freelance writers and photographers: the law removes the controversial “35-submission limit” to qualify for exemption from AB 5. This is a major victory because the submission limit previously rendered writers and photographers who submitted more than 35 articles or projects per year ineligible for the exemption. Now, these occupations are exempt from AB 5 and the ABC test when the following elements are met: (1) there is a written contract that specifies rate of pay, intellectual property rights, and an obligation to pay by a defined time; (2) the individual doesn’t otherwise replace an employee; (3) the individual does not primarily work at the location of the hiring entity; and (4) there is no restriction preventing the individual from working for more than one entity.  

Changes to the “Business to Business” Exemption 

Although the business-to-business exemption is one of the narrowest AB 5 exemptions, it applies to certain contracting relationships in which a “business service provider” provides services to a “contracting business.” In order for the business-to-business exemption to apply, the “business service provider” (i.e., contractor) must be free from the control and direction of the “contracting business entity” in connection with the performance of the work, both under the contract for the performance of the work and in fact. 

The amendments to the business-to-business exemption require that business service providers be merely free to provide services to other clients, rather than requiring that they actually provide services to more than one client. Further, the update to this exemption now allows business service providers to provide services directly to the customers of a contracting business so long as its employees are performing the services under the name of the business service provider and the business service provider regularly contracts with other businesses.

Is AB 5 Merely a Sneak Preview of a National Trend? 

Even with the recent changes to AB 5, the upcoming presidential election has further implications for the worker classification battle underway in California. Although President Trump’s campaign has not yet weighed in, there is a clear message on Democratic presidential nominee Joe Biden in his published Plan for Strengthening Worker Organizing, Collective Bargaining and Unions: “[Biden] will work with Congress to establish a federal standard modeled on the ABC test for all labor, employment, and tax laws.” It is therefore possible that in a not-too-distant future, all U.S. workers could be subject to the “ABC” test.  On the other hand, it should be noted that the U.S. Department of Labor has recently proposed a new rule that would make it easier for employers to classify workers as contractors. 

Regardless, the recent changes provided by AB 2257 are worth noting in the complex labor classification context created by California’s AB 5.  Accordingly, we recommend reaching out to MSK’s expert team to determine whether employees and contractors are properly classified. 

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