On September 4, Governor Newsom signed Assembly Bill (AB) 2257. This new law modifies AB 5, whose strict ABC test resulted in many contractors being classified as employees. When passed, AB 5 impacted online content providers, news services, transportation companies, musicians, artists, and other California businesses that have traditionally relied on a contractor-based workforce.
AB 2257 provides much-needed clarification of several ambiguities in AB 5, which exempted certain occupations and business relationships from the stringent ABC test and, instead, subjected them to the multifactor test described in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989). These occupations and relationships included but were not limited to:
- Medical professionals such as doctors, dentists, podiatrists, psychologists, and veterinarians
- Licensed professionals such as attorneys, engineers, architects, estheticians, and hairstylists
- Financial services professionals
- Professional services such as marketers, travel agents, HR administrators, and fine artists
- Real estate agents
- Direct salespeople whose compensation is based on actual sales
- Builders and contractors
- Freelance writers, editors, newspaper cartoonists, photographers, and photojournalists who provide a maximum of 35 submissions per year to one outlet
AB 2257 modifies and expands these exemptions to cover additional roles and industry sectors, allowing them to qualify for evaluation under Borello rather than the ABC test. They include:
- Photographers, photojournalists, videographers, and photo editors
- Music professionals and performance artists, including those engaged for a single live performance
- Fine artists, freelance writers, editors, copy editors, translators, advisors, producers, illustrators
- Insurance underwriters
- Professional consultants
- Some occupations involved with the creation, marketing, promotion, or distribution of sound recordings or musical compositions
- Home inspectors and real estate appraisers
- Content aggregators
Modified Business-to-Business Exemption
AB 2257 has revised the language of the AB 5 ‘business to business’ exemption to support a more flexible application. For example, under AB 5, all business to business contracts were subjected to the ABC test if the vendor’s staff directly worked with the hiring entity’s customers. AB 2257 states that this condition does not apply if the service provider’s employees are performing all services solely under the contract in the service provider’s name, and that provider regularly contracts with other companies.
Modified Referral Agencies Exemption
Services that qualify for the referral agency exemption have been expanded to include consultants, wedding planners, event planners, caddies, coaches, and interpreters with a certified provider. AB 2257 also identifies services that do not qualify for the exception, such as courier deliveries, janitorial work, and work done in an industry designated as ‘high hazard’ by the Department of Industrial Relations and Division of Occupational Safety and Health.
Although AB 2257 provides clarification and relief to some industries, the law continues to evolve in this area. California companies that use independent contractors or gig workers should review all of their classifications and working arrangements with an employment attorney who can help them prevent any potential misclassification issues moving forward.