California Enacts AB 2257, Providing Much- Needed Clarification and Adding Exemptions to AB 5

Background On AB 5

AB 5, which took effect on January 1, 2020, codified the ABC Test for employee status adopted in the California Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court. In Dynamex, the California Supreme Court held that in order to defeat claims arising under California’s Wage Orders premised on independent contractor misclassification, a defendant must prove that: (A) the worker is free from control and direction of the hiring entity in connection with performing the work, both under contract and in fact; (B) the worker performs work outside the usual course of the hiring entity’s business; and (C) the worker customarily engages in an independently established trade, occupation, or business of the same nature as the

work performed for the hiring entity.

AB 5 expanded the reach of Dynamex by making the ABC Test the default test for all Labor Code, Unemployment Insurance Code and Wage Order claims. As a result, application of the ABC Test was extended to a host of additional causes of action to which it previously did not apply, such as, for instance, claims for failure to reimburse necessary business expenses and failure to provide accurate wage statements.

In addition to expanding the applicability of the ABC Test, AB 5 also provided for broad governmental enforcement powers. It enabled the Attorney General and certain city attorneys to pursue injunctions against businesses suspected of misclassifying independent contractors.

AB 5 also contained numerous statutory exemptions from the ABC Test. Provided certain criteria were met, the employment status of independent contractors in an occupation covered by one of these exemptions was determined by the common law test for employment (commonly known as the Borello test), a considerably more flexible standard than the ABC Test. The fact that some industries were expressly exempted while others were not, led to controversy, confusion, and requests from hiring entities and workers in dozens of industries for additional and clarifying legislation. As of February, of this year, the Legislature introduced 34 stand-alone bills exempting certain industries. As those measures wound through the legislative process, they

were, for the most part, distilled into AB 2257.

What’s New In AB 2257?

AB 2257 maintains the essential framework of AB 5. The ABC Test remains the default standard for independent contractor misclassification. However, as a result of swift and concerted lobbying efforts, a plethora of new statutory exemptions from the ABC Test, which apply retroactively where applicable, are now available. In addition, some of the existing exemptions have been altered in potentially significant ways.

• Business-To-Business Exemption: AB 2257 maintains the exemption for “bona fide business-to-business contracting relationships” where a contractor “acting as a sole proprietor, or a business entity formed as a partnership, limited liability company, limited liability partnership or corporation contracts to provide services to another such business.” The exemption now also applies where a “public agency or quasi-public corporation” has retained a contractor. However, in addition to broadening the availability of the exemption, AB 2257 also extends the application of the ABC Test to individual workers retained by a contractor, with respect to their relationships with both the contractor and the hiring entity. In other words, the ABC Test will determine whether an individual worker retained by a contractor, and not directly by the hiring entity, is an employee of the hiring entity. This could prove to be a significant change, as it seemingly conflicts with traditional principles of joint employment.
• “Single-Engagement” Business-To-Business Exemption: AB 2257 creates an exemption from the ABC Test for individual businesspersons who contract with one another “for purposes of providing services at the location of a single-engagement event.” Provided certain criteria are met (including a lack of control over the work, a written contract specifying payment amounts, and each individual’s maintenance of his or her own business location), the ABC Test will not apply where one individual contracts with another to perform services at “a stand-alone non-recurring event in a single location, or a series of events in the same location no more than once a week.”
• Referral Agency Exemption: Expressly applying the exemption to a non-exclusive list of additional services, including consulting, youth sports coaching, caddying, wedding or event planning, services provided by wedding and event vendors and interpreting services.
• Professional Services Exemption: The following occupations content contributors, advisors, producers, narrators or cartographers for certain publications (provided they do not displace existing employees); specialized performers hired to teach a class for no more than a week; appraisers; registered professional foresters; and home inspectors.
• Music Industry & Performer Exemptions: AB 2257 creates several exemptions for the entertainment industry, primarily in the music industry. First, the following occupations involved in creating, marketing, promoting or distributing sound recordings or musical compositions are exempt from the ABC 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.
• Miscellaneous Exemptions: Subject to certain requirements, AB 2257 adds exemptions for the following occupations: manufactured housing salespersons; certain individuals engaged by international exchange visitor programs; and competition judges (including amateur umpires and referees).
• Broader Governmental Enforcement Powers: AB 2257 provides district attorneys the ability to file an injunctive relief action against businesses suspected of misclassifying independent contractors. Previously, only the Attorney General and certain city attorneys possessed this power.

What this means for businesses

To qualify for the “business-to-business” exemption, contracts should be between legitimate, full-scale businesses. Where possible, avoid contracting with a single individual or “fly-by-night” operations. Contracting businesses should consider requiring contractors to submit business cards or other advertising/marketing materials establishing that the contractor holds itself out to the public as available to provide the services for which it is being engaged. The Business to Business exemption details can be requested thru NTA website.

One thing you can do is advertise your business in a trucking magazine such as 10-4 Magazine or on the NorthAmerican Transportation Association’s Trucking Directory.