AB 5 Did Not Settle the Independent Contractor Dispute
The passage of AB 5 affected the way many organizations conducted their operations in California. In 2018, the California Supreme Court issued the landmark decision Dynamex Operations West, Inc., adopting the “ABC” test imposing tougher legal standards classifying workers as independent contractors. Several issues emerged from the Court’s decision leading the California Legislature to codify the ABC Test into law AB 5 in September 2019. (Read more here) However, there were still many unanswered issues.
On September 4, 2020, Gavin Newsom signed Assembly Bill 2257 (“AB 2257”) into law. AB 2257 significantly expands and clarifies the list of occupations that may qualify for an exemption to the “ABC” test under AB 5.
Occupations that are now exempt include those in the music and entertainment industry, such as recording artists, song writiers, performing artists, independent radio promoters, and certain types of publicists. Additionally, the new law addresses the submission cap in the journalism / publication industry. Specifically, there is no longer a limit on the number of assignments that can be taken by photographers, photojournalists, videographers, photo editors, freelance writers, editors, copy editors, and illustrators, and newspaper cartoonists that triggers the requirement of “employee” classification.
Rather, to fall under the definition of “professional services” and potentially qualify for the exemption now found in Labor Code § 2778, the new law requires, among other factors, that these workers:
- Perform work under a written contract that specifies certain terms;
- Be free to work for more than one hiring entity;
- Primarily perform their work away from the hiring entity’s business location; and
- Not displace existing employees performing the same type of work at the same volume for the hiring entity
The new law also expands the business-to-business exemption, to apply to individuals acting as sole proprietors not just business entities. Essentially, a business service provider that provides services directly to the contracting business rather than to its customers will still retain its independent contractor status, so long as the “service provider’s employees are solely performing the services under the contract under the name of the business service provider and the business service provider regularly contracts with other businesses,” It creates a brand new exemption form the ABC Test within the Labor Code § 2779 for two or more sole proprietors who contract with one another for the “purposes of providing services at the location of a single-engagement event” provided certain criteria are satisfied.
These exemptions provide relief to some gig workers and this new law may elicit more lobbying and legal challenges, which will inevitably lead to additional exemptions or amendments to the current law. Our office will keep an eye out for new changes and provide you with any updates.
Misclassification of employees still continues to be one of the areas that are heavily litigated. We recommend reviewing any agreements regarding independent contractors with your employment attorney to ensure your organization is in compliance with the labor code. While wage and hour claims are not covered under Employment Practice Liability Insurance (EPLI) policy some carriers provide a wage and hour defense sublimit. It is important to review with your employment attorney your policy to check if you have wage and hour defense coverage.
Let us know if you have any questions or would like us to provide you with a quote for EPLI with wage and hour defense sublimit. We are here to help!
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