There’s important news for many individual creatives and the companies that hire them. On September 4th, California expanded the list of professions and employees that are exempt from the so-called “ABC test” – a test governing classification of certain workers. The expansive new law covers many industries, but will have a particularly large impact on the media, entertainment and advertising community. Here’s a brief summary of what you need to know.
The ABC test. In 2018, the California Supreme Court adopted the ABC test severely restricting the classification of workers as independent contractors in the state. The ABC test starts with a presumption that all workers in the state are employees. It then shifts the burden to the hiring entity to prove three factors in order to legally classify the worker as an independent contractor: (a) the worker is free from the control and direction of the hiring entity in connection with the performance of the work; (b) the worker performs work that is outside the usual course of the hiring entity’s business; and (c) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. Failure to prove even one prong of the ABC test requires that the hiring entity classify the worker as an employee and not an independent contractor.
AB 5. In January, 2020, AB 5 -- which codified the ABC test in California for all provisions of the Labor Code – took effect. While AB 5 adopted the ABC test, it did provide some limited exemptions for certain industries such as lawyers, doctors, and those industries defined by AB 5 as “professional services” such as graphic artists and licensed estheticians.
AB 2257. Last week, the California legislature passed, and Governor Newsom signed, AB 2257 which expands the workers eligible for exemptions from the ABC test. The music industry benefits the most from the newly minted exemptions in AB 2257: the new law now exempts music professionals such as recording artists, musicians, composers and songwriters. AB 2257 also makes it easier for freelance writers, still photographers and photojournalists to qualify for exemptions from the ABC test.
Classifying newly exempt employees. However, qualifying for an exemption does not mean that independent contractor status is guaranteed. Rather, the classification analysis for these exempt workers will be governed by the standard used in California for 30 years prior to the ABC test -- known as the Borello factors. This test looks at nine separate fact-intensive elements, punctuated by a “principal factor” of “ whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired."
AB 2257 takes effect immediately.