California has amended its independent contractor law to make more jobs and professions exempt from the “ABC” test that AB 5 codified last year. Governor Newsom signed the amendment into law on September 4, 2020. It becomes effective immediately.
AB 2257 modifies and expands the list of professions exempt from the “ABC” test to include additional occupations and industry areas. These changes primarily impact freelance writers, musicians, film support crews and visual artists, making it easier for companies to classify them as independent contractors.
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.
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.
|EXEMPT OCCUPATIONS||“PROFESSIONAL SERVICES” EXEMPTIONS||BUSINESS-TO-BUSINESS EXEMPTION|
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.
AB 2257 clarifies the exemption’s requirements and, in theory, allows more flexibility in how it may be applied.
Note: This subdivision does not apply to an individual worker, as opposed to a business entity.
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. The trigger for that assessment is typically (though not always) the issuance of an arrangement that results in a form 1099. We suggest that businesses conduct an immediate audit to determine whether any contracts are legitimately subject to reclassification in light of these amendments.