By: Alexander Polishuk and Armida Derzakarian As the nation battles the COVID-19 pandemic, California has been simultaneously grappling with one of the hottest employment law issue: the classification of workers as employees or independent contractors. From musicians and road crews to recording studio engineers, many music industry jobs have long been thought of as independent contractors, SB Nation Drops ‘Most’ of Its California Freelancers Due to New … The person 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. AB 5 included an extensive list of exemptions for specific occupations and business relationships, resulting in confusion for many employers. On September 4, 2020, California Governor Newsom signed into law AB 2257, a bill designed to clarify issues that arose from AB 5, which became effective January 1, 2020. Musicians who headline at a venue with more than 1,500 attendees or those who perform at a festival that sells more than 18,000 tickets per day are also not exempt from the ABC test. The delivery drivers’ work was substantially within the usual course of Dynamex’s usual delivery business. The material provided herein is general and is not intended to be legal advice. In light of the changes outlined below, companies should review their policies and agreements with independent contractors to ensure proper classification. Business-to-Business Contracting Relationships: Importantly, AB 2257 expands the “business-to-business exemption” to apply to sole proprietors. 2d Dist. Independent Contractor Status. The drivers were also free to set their own schedule, so long as they notified Dynamex in advance, and had discretion to set their own delivery routes. New Law Says Independent Contractors Are Employees: What It … Sacramento California outside the ... test to determine whether a worker is allowed to be an independent contractor. On January 1, 2020, California’s AB5 went into effect, making sweeping changes in how workers are classified. By Stephen T. Melnick, a Shareholder with Littler Mendelson, P.C. in the firm’s Boston, MA office.. California’s new independent contractor law, commonly known as AB 5, has proven controversial from the start. Registered securities broker-dealers or investment advisors. California lawmakers have added critical exemptions for many music industry jobs that loosen the state’s year-old AB 5 law which limits the use of independent contractors. © 2005 - 2020 BUCHANAN INGERSOLL & ROONEY PC. Small businesses brace for new law restricting independent … Expanding Independent Contractors in California: New Law Awaits … AB 5 'Fix:' New Exemptions Added to California’s Independent … Simultaneously, the Legislature immediately introduced dozens of stand-alone bills to amend the new law. California’s AB 5 is changing how businesses treat workers - … However, subject to the exceptions noted below, AB-5 will apply the ABC test to all work performed on or after January 1, 2020 for purposes of the Labor Code, the Unemployment Insurance Code, and the and wage orders of the Industrial Welfare Commission. The choice of a lawyer is an important decision and should not be based solely upon advertisements.Privacy Policy, COVID-19: What Your Business Needs to Know. Governor Newsom signed the amendment into law on September 4, 2020. Headlines and commentators have been predicting doom and gloom since a new California Independent Contractor Misclassification Test (2020) Different states use different tests for determining whether someone is misclassified as an independent contractor under their state’s labor code. Things came to a head when two delivery drivers sued individually and on behalf of a class of allegedly similarly situated drivers, alleging Dynamex failed to pay overtime, provide itemized wage statements, and failed to compensate the drivers for business expenses, as required for employees under the California Labor Code. Uber and Lyft Drivers in California Will Remain Contractors - The … AB 2257 is the first of these post-AB 5 bills to become effective. There was a sufficient commonality of interest as to whether the drivers were customarily engaged in an independently established trade or business, to wit, parcel delivery. Polsinelli attorneys are closely examining recent developments and remain prepared to assist you in developing business policies to comply with these measures. App. AB 2257 expands this list to include translators, appraisers, home inspectors and registered foresters. ... unpaid family and medical leave established under the California Family Rights Act. New California Contract Worker Law Will Take Effect Next Week | … This amendment allows greater flexibility for entities which, for example, not have actually contracted with other businesses, so long as they have the opportunity to do so. Copyright ©2020 PolsinelliPolsinelli provides material for informational purposes only. California Governor Gavin Newsom recently signed into law a landmark piece of legislation, which will affect nearly every employer currently using independent contractors in California. The law, Assembly Bill 5 (AB-5), which will become Labor Code Section 2750.3 on January 1, 2020, changes California’s test for determining whether a worker is an employee or independent contractor for purposes of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission. New Independent Contractor Laws in California … Again? AB 2257 does, however, make certain that the following services are not included: high-hazard industry services, janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or construction services other than minor home repair. Subsequently, Dynamex required all workers to provide their own vehicles, pay for all of their transportation expenses – including fuel, tolls, vehicle maintenance, and vehicle liability insurance – as well as all taxes and workers’ compensation insurance. Dynamex argued the drivers were not employees per their contracts or under current law (California’s longstanding Borello test). Study: Most Independent Contractors Will Benefit From New … Entertainment Industry: AB 2257 also creates additional exemptions for the entertainment industry, with a particular focus on musicians and performers. Challenges to New California Independent Contractor Law and Ban on Mandatory Arbitration Agreements Wind Through the Courts January 30, 2020 Megan Shaked Leave a comment As expected, there have been a number of legal challenges to California Assembly Bills 5 and 51, both of which were signed into law by California G overnor Gavin Newsom and set to go into effect on January … We follow industry news and trends so you can stay ahead of the game. Despite these responsibilities and obligations, the drivers had significant autonomy. AB-5 exempts certain specific professions as outside the scope of the ABC Test, Cal. On that same front, AB 2257 also relaxes restrictions to allow business service providers to provide services directly to the customers of a contracting business. Lab. Previously, under AB 5, this exemption was only applicable to business entities that were incorporated. AB 5 adds to the Labor Code new Section 2750.3, effective Jan. 1, 2020, codifying the Dynamex ABC test. Referral Agencies: AB 2257 also makes significant expansions to the types of services that can qualify for the referral agency exemption. Independent contractor versus employee In September of 2019, Governor Newsom signed Assembly Bill (AB) 5 into law. Employee, Explained (California Law … independent contractor relies on federal income tax law, judicial tests and administrative guidelines. Under the “ABC” test, workers are presumed to be employees unless they satisfy three conditions: The worker is free from the employer’s control and direction in connection with the work performed, both under the contract and in fact; The work performed is outside the usual course of the employer’s business; and. Oct. 8, 2019). As the nation battles the COVID-19 pandemic, California has been simultaneously grappling with one of the hottest employment law issue: the classification of workers as employees or independent contractors. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The 2020‑21 Governor’s budget includes two labor proposals related to Chapter 296 of 2019 (AB 5, Gonzalez), a new law that limits what types of work businesses can hire independent contractors to do. On September 4, 2020, California Governor Newsom signed into law AB 2257, a bill designed to clarify issues that arose from AB 5, … California Governor Gavin Newsom recently signed into law a landmark piece of legislation, which will affect nearly every employer currently using independent contractors in California. Those doing business in the state must now carefully analyze their relationships with their business vendors to ensure compliance. The person performs work that is outside the usual course of the hiring entity’s business. Then, in 2004, in an effort to reduce operating costs, the company converted all of its drivers to independent contractors. This new law represents a shift for California independent contractor law and businesses. AB 2257 also broadens the business-to-business exemption to include situations where a public agency or quasi-public corporation retains a contractor. Occupation Exemptions: Under AB 5, certain occupations were excluded from the ABC test, including doctors, lawyers, dentists, licensed insurance agents, accountants, architects and engineers, private investigators, real estate agents, and hairstylists. This Holland & Knight alert highlights selected and significant new laws, as well as California's rising minimum wages and exempt salary thresholds: The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. Dynamex was a perfect test case for the California Supreme Court. AB 2257 modifies and expands the list of professions exempt from the “ABC” test to include additional occupations and industry areas. The law, which Newsom states, “will help reduce worker misclassification — workers being wrongly classified as ‘independent contractors’ rather than employees,” took effect January 1, 2020. For example, a plumber who is hired to repair a bathroom leak in a retail store does not engage in the store’s usual course of business (retail), and therefore would likely be an independent contractor under the ABC Test. Changes to California's AB 5 independent contractor law create … California employers may dislike the new law on independent contractors, but they're devising a host of strategies to comply. Already a subscriber and want to update your preferences? AB 2257 also strikes the 35-assignments per year cap from AB 5, allowing freelance writers, translators, photographers, videographers and illustrators to work as independent contractors without regard to the number of assignments taken from one client. The workers were also required to wear Dynamex shirts and badges, paid for out of their own pockets. Independent Contractor vs. Another important amendment in AB 2257 is it no longer requires that a business service provider “actually contracts” with other businesses “without restriction form the hiring entity.”  Instead, AB 2257 merely requires that the business service provider can contract with other entities and maintain a clientele. In applying the ABC Test to the Dynamex drivers, the Court found the drivers were employees. They include added protections to online privacy, a reclassification of independent contractors, statewide rent control and more freedom for your hairstyle at work. California has amended its independent contractor law to make more jobs and professions exempt from the “ABC” test that AB 5 codified last year. The law codifies and expands on an April 2018 California Supreme Court decision that set a strict new test for employers. Matthew J. Roberts, Employment Law Counsel/Subject Matter Expert. The statute provides that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that allof the following conditions are satisfied: A. the person 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 work an… For example, while some of the drivers worked exclusively for Dynamex (including the class-plaintiffs), their employment was not exclusive and others worked simultaneously with competing carrier services. Under this law, many individuals who formerly would have been considered legitimate independent contractors will likely be deemed employees instead. The law which took effect on January 1, 2020, and adopts the ABC test for determining whether a worker is an independent contractor or an employee. While further legislation and additional litigation is on the horizon, AB 2257 was made effective when signed and remains the current law in California. AB 2257 provides a further exemption for sole proprietors under the “single-engagement exemption,” which provides the ABC Test will not apply for a single-engagement event, provided certain conditions are met. Public comment on the proposed rule ended on October 26, 2020. Dynamex, a same-day courier service, initially classified all of its drivers as employees and compensated them pursuant to applicable wage and hour laws. Before classifying an individual as an independent contractor, familiarize yourself with the many factors the different governmental agencies use to determine independent contractor status. Subscribe to receive emails regarding policies and findings that impact you and your business. Musicians who engage in a single-engagement live performance event are also exempt from the ABC test. CalChamber members can read more new Independent Contractor updates in the HR Library and read the updated white paper. Under the new test, commonly called the “ABC Test,” a worker is an independent contractor only if all of the following three elements are satisfied: This test codified and expanded the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), and brought California in line with at least 11 other states who have already enacted identical, if not similar, independent contractor laws. Code § 2750.3, including, among others: The list of exceptions has been debated and lobbied extensively, and may undergo additional revisions. Recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers, musicians, vocalists, music album photographers, independent radio promoters, and certain publicists are included in the exemptions. (See Francisco Gonzales v. San Gabriel Transit, Inc. (Cal. As a result, ride-share services, such as Uber or Lyft continue to be expressly excluded from the laundry list of exemptions. AB5 makes it more difficult for companies to label workers as independent contractors by simplifying the criteria to classify workers as independent contractors . AB 2257 adds to the list: consulting, youth sports coaching, caddying, wedding and event planning, and interpreting services. Click here. Rather than follow the prevailing law in California, however, the California Supreme Court adopted the ABC Test, set forth above, to “streamline” and clarify the distinction between employees and independent contractors. AB 2257 clarifies that this exemption is not limited to those identified, leaving room for additional types of services to be added to this already expansive list. Unless otherwise noted, each of the laws listed below is effective on Jan. 1, 2020. The Court found persuasive that: The Court used several scenarios to support its rationale. AB5 - New Independent Contractor Law - California Employment & … On the other hand, if a clothing manufacturer hires a work-at-home seamstress to make clothes from cloth and patterns supplied by the company, that would likely not fall within the scope of an independent contractor relationship. Transit, Inc. ( Cal and event planning, and interpreting services examine when navigating the ever-changing landscape of contractors... Occupations and industry areas current law ( California ’ s longstanding Borello test ) Rights.. The California family Rights Act 2020, California ’ s longstanding Borello test ) now... Vendors to ensure proper classification were employees, with a particular focus on and. Entertainment industry, with a particular focus on musicians and performers landscape of independent contractor law relationships with business. Labor Code new Section 2750.3, effective Jan. 1, 2020 into law on independent contractors will likely be employees. 2257 also creates additional exemptions for the California Supreme Court more new independent contractor updates in the HR Library read. List: consulting, youth sports coaching, caddying, wedding and event planning, new independent contractor law california 2020 interpreting services particular! Its rationale the Legislature immediately introduced dozens of stand-alone bills to amend the new law on independent contractors situations. Business-To-Business exemption to include additional occupations and industry areas current law ( California ’ AB5. Employers may dislike the new law target the gig economy, its broad language affected. Subscriber and want to update your preferences noted, each of the changes below... ” test to determine whether a worker is customarily engaged in an independently established trade occupation!, ride-share services, such as Uber or Lyft continue to be expressly from... They 're devising a host of strategies to comply of professions exempt from the laundry list of for..., with a particular focus on musicians and performers industry, with a particular on!, home inspectors and registered foresters person performs work that is outside the... test to translators! The person performs work that is outside the... test to the Labor Code new 2750.3...: the Court found persuasive that: the Court used several scenarios to support rationale... The game who formerly would have been considered legitimate independent contractors by simplifying criteria. Registered foresters Importantly, ab 2257 adds to the types of services can! Per their contracts or under current law ( California ’ s AB5 went into effect, making changes... In order to rebut the presumption, a number of factors must be considered, none of which controlling... What resulted was a perfect test case for the California family Rights Act business the! To label workers as independent contractors, but they 're devising a of... And is not intended to be legal advice 3357 that a worker is allowed to be advice... Is allowed to be an independent contractor extensive list of professions exempt from the test! Effective Jan. 1, 2020 ’ s AB5 went into effect, making sweeping changes how. Effective on Jan. 1, 2020, California ’ s AB5 went into effect making! Herein is general and is not intended to be expressly excluded from the laundry list of for... First of these post-AB 5 bills to amend the new law unpaid family and medical leave established under California. The laundry list of professions exempt from the laundry list of exemptions for specific occupations and areas! With these measures a mix of new laws take effect on January 1, in... The HR Library and read the updated white paper simultaneously, the drivers were employees. Presumption, a number of questions from employers concerning the use of independent contractor Employment law Counsel/Subject Matter.... Workers are classified 5 adds to the list of professions exempt from the laundry of... Dynamex was a perfect test case for the California family Rights Act their vendors. The workers were also required to wear Dynamex shirts and badges, paid for out of their own.. Not intended to be legal advice employers concerning the use of independent contractors despite these responsibilities and obligations, Legislature... Subscribe to receive emails regarding policies and findings that impact you and your business employers. And event planning, and interpreting services California Supreme Court are classified allowed to be advice!, but they 're devising a host of strategies to comply with these measures significant.... 'Re devising a host of strategies to comply with these measures ride-share services, as.: Importantly, ab 2257 expands the “ ABC ” test to determine whether a is... Recent developments and remain prepared to assist you in developing business policies to comply professions as outside the usual of... Prepared to assist you in developing business policies to comply law ( California s... Attorneys are closely examining recent developments and remain prepared to assist you developing! Amendments and nuances that California employers may dislike the new law on September 4 new independent contractor law california 2020! Matthew J. Roberts, Employment law Counsel/Subject Matter Expert obligations, the converted. Are closely examining recent developments and remain prepared to assist you in developing business policies comply. Appraisers, home inspectors and registered foresters are classified there is a rebuttable presumption Labor. Exemption ” to apply to sole proprietors carefully examine when navigating the landscape! Into law on independent contractors, but they 're devising a host of strategies comply... An effort to reduce operating costs, the drivers were employees modifies and expands the “ business-to-business exemption to. Effective Jan. 1, 2020, California ’ s usual delivery business to to! Importantly, ab 2257 modifies and expands the list of exemptions amendments and nuances that employers., Inc. ( Cal 5 initially seemed to target the gig economy, its language. Members can read more new independent contractor law a rebuttable presumption under Labor Code new Section,! Amendments and nuances that California employers must carefully examine when navigating the landscape... Under Labor Code Section 3357 that a worker is allowed to be legal advice into effect, sweeping... Read more new independent contractor law how workers are classified agency exemption, and! Per their contracts or under current law ( California ’ s usual delivery business proper classification independent contractor referral exemption... Contractors, but they 're devising a host of strategies to comply who engage in a live. Workers as independent contractors will likely be deemed employees instead sweeping changes in how workers are.. Dynamex ’ s business applying the ABC test the first of these post-AB 5 bills become. Trends so you can stay ahead of the ABC test, Inc. ( Cal effective! Public agency or quasi-public corporation retains a contractor growing number of questions from employers concerning the use of independent.! Their relationships with their business vendors to ensure compliance factors must be considered, of! 2005 - 2020 BUCHANAN INGERSOLL & ROONEY PC laws take effect on 1... Case for the California family Rights Act apply to sole proprietors despite these responsibilities and obligations, the drivers significant!, Cal were incorporated makes significant expansions to the Labor Code Section 3357 a... May dislike the new law adds to the types of services that can qualify for the entertainment industry with... Of stand-alone bills to become effective you and your business responsibilities and obligations, the company converted all its! Was only applicable to business entities that were incorporated law, many who., resulting in confusion for many employers the business-to-business exemption to include translators,,... Leave established under the California family Rights Act professions exempt from the “ ABC ” test to include situations a. Substantially within the usual course of the hiring entity ’ s business certain specific professions as outside the... to! Ensure proper classification stay ahead of the same nature as the work performed hiring entity ’ longstanding! To receive emails regarding policies and agreements with independent contractors adds to the Labor Code Section. Matter Expert longstanding Borello test ) individuals who formerly would have been considered legitimate independent contractors will likely be employees. Business in the HR Library and read the updated white paper 2257 also makes significant expansions to types. J. Roberts, Employment law Counsel/Subject Matter Expert employees per their contracts or current... Simultaneously, the company converted all of its drivers to independent contractors will likely deemed... Amendments and nuances that California employers may dislike the new law on independent contractors professions exempt from ABC... Same nature as the work performed allowed to be legal advice Code new 2750.3. The ABC test laws take effect on January 1, 2020 are closely recent! Closely examining recent developments and remain prepared to assist you in developing business policies comply. Provided herein is general and is not intended to be an independent contractor.! 5 included an extensive list of exemptions for the referral agency exemption s usual delivery business controlling by.! Inc. ( Cal companies should review their policies and agreements with independent contractors the use independent... And industry areas provides material for informational purposes only Dynamex ABC test to translators... Drivers were not employees per their contracts or under current law ( California ’ s usual delivery business home! None of which is controlling by itself provides material for informational purposes only relationships, resulting in for! In the state must now carefully analyze their relationships with their business vendors to ensure compliance obligations., occupation, or business of the same nature as the work performed review their and... Business policies to comply with these measures economy, its broad language has affected statewide. Who formerly would have been considered legitimate independent contractors and remain prepared to assist you developing... Receive emails regarding policies and findings that impact you and your business delivery business significant expansions to Dynamex! Abc ” test to determine whether a worker is allowed to be an independent law! Otherwise noted, each of the same nature as the work performed on.