AB 2257: A closer look at the new exemptions to AB 5

California Assembly Bill 5 went into effect on Jan. 1 and codifies and expands the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal. 5th 903 (2018). AB 5 is codified as California Labor Code Section 2750.3. The Dynamex decision provides a three-part test, commonly known as the ABC test, to determine whether a worker may be properly classified as an independent contractor. AB 5 currently exempts some specified professions and business relationships from the Dynamex classification standard and instead permits review under the previous worker classification standard established by the California Supreme Court in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989).

Under Dynamex’s ABC test, a worker shall be considered an employee, rather than an independent contractor, unless each of the following criteria are met: “(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 the work and in fact. (B) The person performs work that is outside the usual course of the hiring entity’s business. (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

Several amendments to AB 5 were proposed by the Legislature to exempt certain professions and relationships from the ABC test. One of those amendments, AB 2257, which is the focus of this article, passed in the Senate and was signed into law by Gov. Gavin Newsom on Sept. 4. AB 2257 took effect immediately upon passage.

AB 2257 provides that the exemptions to AB 5 should be reviewed under the Borello worker classification standard, instead of Dynamex’s ABC test. Borello sets forth a multi-factor test in order to determine whether the hiring entity has control and direction over the manner and means of the worker’s services, both under contract and in fact.

Business-to-Business and Referral Agency Relationships

AB 5 as drafted contains an exemption for a bona fide business-to-business contracting relationship. AB 2257 expands this business-to-business exemption. It adds “an individual acting as a sole proprietor” to the definition of “business service provider,” and also adds a public agency or quasi-public corporation to the definition of “contracting business.”

In addition, AB 2257 modifies AB 5’s existing exemption for the relationship between a referral agency and service provider. Under AB 5 as drafted, if a service provider renders services to clients through a referral agency, the referral agency is required to demonstrate that the service provider satisfies certain criteria, such as having a business license or business tax registration, if required by the jurisdiction. AB 2257 revises the criteria to require the service provider to certify to the referral agency that the service provider has the required business license or business tax registration, and the referral agency is required to keep the certifications for a period of at least three years. AB 2257 also adds additional employment categories to the definition of “referrals for service,” such as graphic and web design, photography, tutoring, consulting, interpreting services, youth sports coaching, event planning, animals services and moving, among other services.

The original AB 5 business-to-business and referral agency exemptions did not apply to individual workers; however, AB 2257 expands the exemption to individual workers.

Photographers, Freelancers, Editors and Related Occupations

AB 5, as currently drafted, contains an exemption for services provided by still photographers, photojournalists, freelance writers, editors or newspaper cartoonists, each of whom do not provide content submissions to the putative employer more than 35 times annually.

AB 2257 removes this exemption and replaces it with an exemption for services provided by: “a still photographer, photojournalist, videographer, or photo editor who works under a written contract that specifies the rate of pay and obligation to pay by a defined time, as long as the individual providing the services is not directly replacing an employee who performed the same work at the same volume for the hiring entity; the individual does not primarily perform the work at the hiring entity’s business location ... ; and the individual is not restricted from working for more than one hiring entity.”

The exemption also applies to services provided to “a digital content aggregator by a still photographer, photojournalist, videographer, or photo editor.” AB 2257 also exempts services provided by “a freelance writer, translator, editor, copy editor illustrator, or newspaper cartoonist” and services “provided by an individual as a content contributor, advisor, producer, narrator, or cartographer for a journal, book, periodical, evaluation, other publication or educational, academic, or instructional work,” who works under a contract similar to that specified in the added language above, with the modification that the contract must also include intellectual property rights.

Other Occupations and Certain Sole Proprietors and Business Entities for a Single-Engagement Event

AB 2257 exempts several additional occupations, including an appraiser and a “person who provides underwriting inspections, premium audits, risk management, or loss control work for the insurance and financial service industries,” among other occupations. AB 2257 adds a new exemption for “the relationship between two individuals wherein each individual is acting as a sole proprietor or separate business entity formed as a partnership, limited liability company, limited liability partnership, or corporation performing work pursuant to a contract at the location of a single-engagement event,” subject to certain conditions.

Music Industry Occupations

AB 2257 creates a new exemption for certain “occupations in connection with creating, marketing, promoting, or distributing sound recordings or musical compositions.” These occupations are generally within the music industry and include “individual[s] 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.” The new provision states that musicians and vocalists that do not receive royalties should be treated as employees only for minimum wage and overtime purposes. AB 2257 also exempts a musician or musical group for the purpose of a single-engagement live performance event, unless certain criteria are met. Finally, AB 2257 exempts certain performance artists who perform original work, subject to certain additional criteria and conditions. 