After statutory adoption in California Assembly Bill 5 of the Dynamex test for determining whether a worker is an employee or independent contractor, the legislature continues to pass legislative exceptions from the decision. AB 5 itself has a long list of exceptions for certain industries, but left others out and in some ways the exceptions were overly confusing and difficult to apply. Thus, the legislature recently passed AB 2257. AB 2257 retains the Dynamex test as the default test for determining independent contractor versus employee status in California, but. revises and expands exemptions from that test for certain industries.
AB 5 included an exception from Dynamex for situations where one business hires another business to perform services, provided 12 criteria were met. Those criteria have proven not to be practical. Thus, AB 2257 revises the business-to-business exception. Now, a business to business relationship is an employment relationship or independent contractor relationship will be decided under the Borello standard instead of Dynamex. (Borello was the case law in California prior to Dynamex and sets forth its own, more flexible 12-factor test for determining whether a worker is an independent contractor or an employee.) However, AB 2577 states business-to-business contracting relationships will be governed by Borello provided 12 factors are met (those 12 factors are not necessarily the same as those set forth in Borello). In other words, if an employer can satisfy 12 factors, then you must look to Borello and apply another 12-factor test to determine whether the relationship is a valid independent contractor relationship.
The exception was broadened to permit a business service provider to provide services to customers of the contracting business rather than solely to the contracting business. The business-to-business exception was also broadened to assure that businesses that provide services to another business need not actually provide services to other clients, so long as they “can” provide services to other clients under the terms of the contract. However, the new test also contains the following complicating provision:
“(b) When two bona fide businesses are contracting with one another under the conditions set forth in subdivision (a) [the business-to-business exception], the determination of whether an individual worker who is not acting as a sole proprietor or formed as a business entity, is an employee or independent contractor of the business service provider or contracting business is governed by Section 2775 [the Dynamex test].”
Thus, where one business contracts with another to provide service, the business-to-business exception allows the service provider business to be classified as an independent contractor, but it does not answer the question of whether the service provider’s employees (who actually perform the work) are employees or independent contractors of EITHER business. The answer to that question is determined by the very narrow Dynamex test (most workers will not qualify as independent contractors.)
AB 2257 also changed the referral agency exception – the relationship between a referral agency and the businesses it refers to customers. Among other things, the new law expands the types of services that the exemption covers, to include things like youth coaching, wedding planning, caddying, interpreting services, consulting, and a host of other services.
AB 2257 also added exceptions for “professional services” and the following unique categories of workers (among others):
- Recording artists;
- Musicians;
- Performance artists;
- Freelance writers and photographers, photojournalists, photo editors, videographers, and other content contributors;
- Fine artists;
- Specialized performers who teach “master classes;”
- Landscape architects;
- Certain field services for the insurance and financial services industries;
- Appraisers and home inspectors;
- Manufactured housing sales;
- Single-engagement events;
- International and cultural exchange services;
- Competition judging
The criteria for each exception are very specific and are set forth in the statute. Any company that utilizes contractors to provide services should review AB 2257 closely to assess whether workers qualify for independent contractor classification.
With campaigns underway by several industries, such as ride-sharing companies, to modify the law make sure to keep in close contact with your business attorney to assure that their contractual relationships and worker relationships are as you intend in your business. Failure to comply may result in substantial penalties and wage and hour employee actions.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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