Maintains his or her own business license for the services offered to clients. Under this test the hiring entity must be able to prove all three of the following: The hiring entity does not … It becomes effective immediately. Before law school, Audrey worked as a government relations analyst. C. the worker is customarily engaged in an independent established trade, occupation, or business of the same nature as the work performed. If the individual is performing services at the location of the hiring entity, then the individual issues a Form 1099 to the salon or business owner from which he or she rents business space. California employers continue to have complicated questions about the use of independent contractors in the state almost a year after adoption of Assembly Bill 5 (AB 5), which established more stringent standards for the classification of workers as independent contractors. Under the ABC test, an individual providing services to an entity is presumed to be an employee unless the hiring entity can establish that: A. the worker is free from control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact The business service provider is not performing the type of work for which a license from the Contractor’s State License Board is required. For nearly 30 years, California courts, the California Labor Commissioner, and the California … Emilia, Nathan, Erika an Cecilie write: California Assembly Bill 5 (AB5), popularly known as the “ gig worker bill,” is a piece of legislation signed into law by Governor Gavin Newsom in September 2019. AB 2257 recast the statutory scheme and added over fifty more exemptions from the ABC Test into the California Labor Code. In that case, the court held that most workers are employees, ought to be classified as such, and the burden of proof for classifying individuals as independent contractors belongs to the hiring entity. This update disregards the submission requirement and allows for more individuals to fall under the exemption. Audrey Nguyen is a Mintz attorney who works on counseling, employment litigation, and other regulatory matters. Answers include federal minimum wage increase, raise of salary threshold for overtime exemption, and a new test for independent contractor status like AB 5 … Translators, copy editors, and illustrators are now included as part of this exemption provided that work is performed under a contract that specifies the rate of pay, time of pay, and intellectual property rights. Behavioral Control:A worker is an employee when the business has the right to direct and control the work performed by the worker, such as when and where to work, what specific tools to use or where to purchase supplies and services. AB 5, which codifies the California Supreme Court’s ABC test for independent contractors as set forth in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, was signed into law by Governor Newsom on September 18, 2019 and will become effective on January 1, 2020. Also, the more detailed the directions and instructions given to th… Additionally, all of the below factors must be met for the exemption to apply to the above listed “professional services”: AB 5’s “business-to-business” exemption had been used by certain freelancers and sole proprietors operating in California as a way to avoid the “ABC” Test. Instead of simply adding to the professional services exemption set forth under AB 5 for still photographers, photojournalists, freelance writers, editors, and newspaper cartoonists who had over 35 submissions in a year, AB 2257 replaces the prior exemption with broader language. This list includes recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineer and mixers, musicians engaged in the creation of sound recordings, vocalists, photographers working on recording photo shoots and related content, independent radio promotors, and any other individual engaged to render any creative, production, marketing, or independent music publicist services related primarily to the creation, marketing, promotion, or distribution of sound recordings or musical compositions. There are … AB 2257 modifies and expands the list of professions exempt from the “ABC” test to include additional … AB 2257 broadens this exemption and creates an additional exemption for relationships between two or more sole proprietors, subject to various requirements. The service provider may also not be restricted from working for more than one entity. Cathy Atkins, JD CAMFT Deputy Executive Director The Therapist January/February 2020. From JDSupra, Emilia Arutunian, Nathan Austin, Erika Barbara Pickles, and Cecilie Read provide an update on the status of AB 5 in California. AB 2257 … AB 5 defines what is a legitimate “business-to-business contracting relationship” and sets forth further requirements to determine whether a “business service provider” is a properly classified independent contractor (e.g., janitorial services, etc. AB 5 and the Independent Contractor Psychotherapist in California. Note: This subdivision does not apply to an individual worker, as opposed to a business entity. Initially, it appeared that the ABC Test would apply to all workers. AB 5, Gonzalez. AB 5 is a law passed by the California state legislature and signed into effect by California governor Gavin Newsom. Non-independent music publicists are also not exempt. With respect to interpreting services, AB 2257 specifies that these services only encompass those provided by a certified or registered interpreter in a language with certification or registration available through the Judicial Council of California, State Personnel Board, or any other agency or department either in California or recognized by one of the following: Registry of Interpreters for the Deaf; Certification Commission for Healthcare Interpreters; National Board of Certification for Medical Interpreters; International Association of Conference Interpreters; United States Department of State; or the Administrative Office of the United States Courts, unless the interpreter is providing services in a language not covered by one of these entities. Borello. It is now easy to identify whether a fitness trainer is an employee or an independent contractor. AB 5 “2.0” – California Tweaks its Independent Contractor Ban, California Law Impacts All Categories of Independent Contractors – Not Just Gig Workers – What Your Business Needs to Do Now, AB 5 - California’s New Independent Contractor Law. The individual may choose to perform services at the hiring entity’s location; If work is performed more than six months after January 1, 2020, the individual has a business license, in addition to any required professional licenses or permits for the individual to practice in his or her profession; The individual has the ability to set or negotiate his or her own rates for the services performed; Outside of project completion dates and reasonable business hours, the individual may set the individual’s own hours; The individual is customarily engaged in the same type of work performed under contract with another hiring entity or holds themselves out to other customers as available to perform the same type of work; and. There is some interplay with other exceptions here – for example, unlike the interpretive services exception, the translator professional services exception does not require individuals to form an entity or have court certifications. Accordingly, businesses may see an increase in litigation from district attorneys seeking to prosecute misclassification issues. With AB 5 now the law in California, the ABC Test has become the gold standard of evaluating workers. However, under AB 5, which became effective January 1, 2020, the California Legislature both codified the main holding of Dynamex and set forth various exemptions from this test – any position or occupation that fell under an exemption would instead be subject to the common law, multi-factor Borello test to determine whether an individual may be considered an employee or independent contractor. Below is the new list of exempt occupations, services and businesses, with the changes and updates from AB 5’s original provisions highlighted in red. This exemption for sole proprietors also includes services provided for certain single-engagement events, defined as stand-alone non-recurring events in a single location, or a series of events in the same location no more than once a week. The requirements to qualify for this exemption have also been modified to allow service providers to negotiate their rates with the client, either directly or now through the referral agency. The new bill expands this exemption by adding a number of additional services to a now non-exhaustive list of services that qualify for the exemption, including consulting, youth sports coaching, caddying, wedding or event planning, services provided by wedding and event vendors, and interpreting services – all groups that have traditionally been independent contractors. Additionally, AB 2257, subject to certain requirements, provides exemptions for individuals engaged in underwriting inspections and other services for the insurance industry, manufactured housing salespersons, certain individuals engaged by international exchange visitor programs, and competition judges. Tailor your perspective of our site by selecting your location and language below. By Jennifer B. Rubin, Audrey Nguyen. These changes primarily impact freelance writers, musicians, film support crews and visual artists, making it easier for companies to classify them as independent contractors. However, in September 2019, California Assembly Bill (AB) 5 passed establishing exemptions. Notably, AB 2257 largely impacts the music and performance arts industries. Marketing, provided that the contracted work is original and creative in character and the result of which depends primarily on the invention, imagination, or talent of the employee or work that is an essential part of or necessarily incident to any of the contracted work, Administrator of human resources (provided certain criteria are met), Services provided by an enrolled agent who is licensed by the United States Department of the Treasury, Payment processing agent through an independent sales organization, Still photographer or photojournalist who does not license content submissions to the putative employer more than 35 times per year (does not apply to motion picture work), Services provided by a freelance writer, editor, or newspaper cartoonist who does not provide content submissions to the putative employer more than 35 times per year. However, under AB 5, which became effective January 1, 2020, the California Legislature both codified the main holding of Dynamex and set forth various exemptions from this test – any position or occupation that fell under an exemption would instead be subject to the common law, multi-factor Borello test to determine whether an individual may be considered an employee or independent contractor. All rights reserved. Specifically, AB 2257 recasts AB 5’s professional services exemption, referral agency exemption, and business-to-business exemption, and additionally encompasses a number of specific occupations that now will fall outside the reach of the ABC test. Here are five key issues California employers must understand about AB 5: This is a dramatic change, given that the previous business-to-business exemption excluded sole proprietorships. Ab 5 is the new statute that codifies the ABC test for classifying workers as employees or independent contractors. In addition, the writer or photographer must not perform the work primarily at the hiring entity’s business location, and may not be restricted from working for other hiring entities. It also adds new positions that qualify as a Professional Service, such as translators, content contributors, advisors, narrators, cartographers, producers, copy editors and illustrators, subject to certain conditions. Jennifer B. Rubin is a Mintz Member who advises clients on employment issues like wage and hour compliance. Signed by Governor Gavin Newsom in September 2019, Assembly Bill 5 (AB-5) redefines what constitutes an independent contractor in California, so that starting January 1, 2020, many gig economy workers will be eligible to receive a guaranteed hourly wage ($12), overtime pay, labor protections, and other benefits received by full-time employees. AB 5: Changing the Landscape for Independent Contractor Analysis Although the national media has largely focused on the effects on ride-hailing, … AB 2257 also adds requirements that the writer or photographer provide services under a contract that specifies in advance the rate of pay and intellectual property rights, and that the contractor not replace an employee performing the same work at the same volume. The bill modifies California’s worker classification law to exempt specific occupations and business relationships from the ABC test. On September 4, 2020, California Governor Gavin Newsom approved AB 2257, effective immediately. AB 5 is a bill the Governor signed into law in September 2019 addressing employment status when a hiring entity claims that the person it hired is an independent contractor. Entities attempting to utilize this exception should ensure that interpreters they engage with have one of these certifications as part of the onboarding process. A worker is more likely to be classified as an employee instead of an independent contractor. Her clients range from start-ups to Fortune 50 companies and business executives in the technology, financial services, publishing, professional services, and health care industries. ABC Test Exemptions. AB 2257 clarifies the exemption’s requirements and, in theory, allows more flexibility in how it may be applied. AB 2257 modifies and expands the list of professions exempt from the “ABC” test to include additional occupations and industry areas. © 2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Content contributors, advisors, producers, narrators, and cartographers have also been added to the exemption, again so long as their services are performed under a contract with the same requirements. The business service provider is free from the control and direction of the contracting business entity, both under the contract for the performance of the work and in fact; The business service provider is providing services directly to the contracting business rather than to customers of the contracting business; The business service contract is in writing; If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration; The business service provider maintains a business location that is separate from the business or work location of the contracting business; The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed; The business service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity; The business service provider advertises and holds itself out to the public as available to provide the same or similar services; The business service provider provides its own tools, vehicles, and equipment; The business service provider negotiates its own rates; The business service provider sets its own hours and location of work; and. We suggest that businesses conduct an immediate audit to determine whether any contracts are legitimately subject to reclassification in light of these amendments. California Assembly Bill 5 or AB 5 is a state statute that expands a landmark Supreme Court of California case from 2018, Dynamex Operations West, Inc. v. Superior Court. A bona fide business-to-business contracting relationship, is exempt from the “ABC” test if the contracting business demonstrates that. Recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers, musicians engaged in creating sound recordings, vocalists, photographers working on album covers, and other press and publicity photos relating to recordings, and independent radio promoters; Musicians or musical groups for the purpose of a single-engagement live performance event; Freelance translators, content contributors, advisors, narrators, cartographers, producers, copy editors, and illustrators; Persons who provide underwriting inspections, premium audits, risk management or loss-control work for the insurance industry; Persons engaged in conducting international and cultural exchange visitor programs; Competition judges with specialized skill sets; Digital content aggregators who serve as licensing intermediaries for digital content; Specialized performers hired to teach a master class for no more than one week; and, Registered securities broker-dealer or investment adviser or their agents and representatives, Direct sales salesperson (per Section 650 of the Unemployment Insurance Code), Workers performing repossession services for repossession agencies. California's law (AB5) on classifying workers as employees or independent contractors (ICs) went into effect on January 1, 2020. Governor Newsom signed the amendment into law on September 4, 2020. DLA Piper is a global law firm operating through various separate and distinct legal entities. AB 5 and the Independent Contractor. Assembly Bill 5 (), California's statute governing the classification of independent contractors, underwent fundamental changes on September 4, 2020 when AB 2257 became law.The new exemptions and revisions apply to exemptions for business-to-business relationships, referral agencies, professional services, performance artists, and other classifications. However, AB 2257 explicitly states that film and television unit production crews, including still photographers and cinematographers and works of live or recorded performances for audiovisual works, are not exempt. No. AB 2257 expands on those exemptions, as discussed further below. This is momentous because it establishes that nearly every fitness studio in California has employees, not independent contractors. In light of the significant modifications AB 2257 places on the exemptions provided by AB 5, companies are strongly encouraged to evaluate existing agreements with independent contractors and determine the impact of AB 2257 on their business practices, stay apprised of any other potential changes to the AB 5 framework moving forward, and monitor litigation in this area. Existing law, as established in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), creates a presumption that a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits arising under wage orders issued by the Industrial Welfare … The individual maintains a business location (may be residence) that is separate from hiring entity. Significantly, AB 2257 now empowers district attorneys to also enforce AB 5 – previously only the Attorney General and certain city attorneys possessed this power. Our site provides a full range of global and local information. We recommend that businesses continue to carefully assess vendor agreements moving forward to determine whether the contracting party falls within the confines of AB 5, as amended. AB5 restricts who can be considered an independent contractor, which is why it is important to understand what AB5 is and how it affects business owners and independent contractors. AB 5 intended to codify the California Supreme Court’s recent Dynamex decision, which significantly narrowed the definition of independent contractor – applying a very strict “ABC” test. Individual performance artists who perform original work are exempt as well, so long as they are free from the control and direction of a hiring entity in connection with the performance of work, intellectual property rights are retained by the individual, the individual may set their terms of work and negotiate rates, and the individual is free to accept or reject individual performance engagements free from penalty. AB 2257 removes that submission ceiling. Previously, under AB 5 freelance writers, photographers, photojournalists, editor, or newspaper cartoonist, who had over 35 submissions a year were subject to the ABC test. ). Additionally, musicians and musical groups performing single-engagement live performance events are also exempt unless: (1) the group is performing as a symphony orchestra, at a theme park or amusement park, or a musician is performing in a musical theater production; (2) the group is an event headliner for a performance taking place in a venue location with more than 1,500 attendees; (3) the group is performing at a festival that sells more than 18,000 tickets per day. Under AB 5 most independent contracting relationships will be assessed under the rigorous ABC test established by the California Supreme Court in Dynamex. AB 5, if enacted into law, would codify the “ ABC Test ” for employee status adopted in the California Supreme Court’s 2018 Dynamex v. Superior Court decision, and would thus further hinder the efforts of businesses to use independent contractors. For further information about these entities and DLA Piper's structure, please refer to the Legal Notices page of this website. The trigger for that assessment is typically (though not always) the issuance of an arrangement that results in a form 1099. The individual customarily and regularly exercises discretion and independent judgment in the performance of the services. With these amendments, roughly 75 professions or types of businesses are now exempt from the independent contracting test set out in AB 5, meaning employers are able to use the common law Borello test instead of the more restrictive “ABC” test to assess whether the workers are employees or independent contractors. Governor Newsom signed the amendment into law on September 4, 2020. While these additions broaden the reach of the referral agency exemption, AB 2257 specifies that the determination of whether an individual worker is an employee of the service provider or of the client to whom the services were provided is subject to the ABC test. Thus, these individuals must be paid the equivalent of minimum wage as well as any overtime premiums for the duration of the services performed. All Rights Reserved. Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions: The worker 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; Do AB 5 and Labor Code section 2750.3 require use of the ABC test in all situations? 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