Applicability of ABC Test independent contractor standards clarified and expanded (a bit)

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As we previously reported, last year, the California legislature passed AB 5, which codified the “ABC Test” under the Dynamex case to determine whether a worker qualifies as an independent contractor. Under the ABC Test, a worker is presumed to be an employee unless the employer can show that: A) the worker is free from the direction and control of the hiring entity, B) the worker performs work that is outside the hiring entity’s main business; and C) the worker normally performs work in an independent business or occupation that is in the same area as the work that the worker is performing for the hiring entity. AB 5 carved out some exceptions to application of the stringent ABC Test, under which the previous (and more lenient) test under the Borello case applies. Now, AB 2257, which took effect immediately, expands and clarifies AB 5’s previous provisions as follows:

  • AB 2257 expands the list of occupations that could be exempt from the ABC Test through the professional services exemption. The following occupations, in addition to those originally identified in AB 5, are now exempt from the ABC Test: content contributors, advisors, producers, narrators or cartographers for certain publications (provided they do not displace existing employees); specialized performers hired to teach a class for no more than a week; appraisers; registered professional foresters; and home inspectors.
  • The “business to business” exception to the ABC Test under AB 5 is expanded to apply to situations where the contracting service provider is free to provide services to other clients, rather than actually providing services to other clients. Also, this exception applies if the service provider is providing the service directly to customers of a contracting business as long as its employees are providing services under the name of the business service provider and the business service provider regularly contracts with other businesses. Now, under the business to business exception, the written agreement between the parties must include the payment amount, including any applicable rate of pay, for services to be performed, as well as the due date of payment for such services.
  • AB 5’s referral agency exception from the ABC Test is expanded, and now the following service providers are covered under this exception: graphic design, web design, photography, tutoring, consulting, youth sports coaching, caddying, wedding or event planning, services provided by wedding and event vendors, minor home repair, moving, errands, furniture assembly, animal services, dog walking, dog grooming, picture hanging, pool cleaning, yard cleanup, and interpreting services. If there is an applicable professional licensure, permit, certification, or registration administered or recognized by the state available for the type of work being performed for the client, the service provider shall certify to the referral agency that they have the appropriate professional licensure, permit, certification, or registration. Also, the service provider must be free to contract with other clients, but need not show that they are actually doing so.
  • A new exemption from the ABC Test is created for individual businesses who contract with each other where the services are being contracted for a “stand-alone non-recurring event in a single location, or a series of events in the same location no more than once a week” as long as certain requirements are met (including lack of control over the work, a written contract specifying payment amounts, and each individual’s maintenance of his or her own business location).

The above are just highlights of AB 2257 and this is not a comprehensive detail of the Bill’s modifications and additions to AB 5.

It is very important to remember that being exempt from the ABC Test is not a free pass to treat a worker as an independent contractor. Rather if the ABC Test does not apply, the common law test under the Borello case will still apply. Specifically, under the Borello standard, multiple factors determine whether a worker is an independent contractor or an employee. The most important factor is whether, and to what extent the employer exercises control over the manner and means of accomplishing the work, and such control need not be direct, actually exercised or detailed. This factor, which is not dispositive, must be considered along with other factors, which include:

  1. Whether the worker performing services holds themselves out as being engaged in an occupation or business distinct from that of the employer;
  2. Whether the work is a regular or integral part of the employer’s business;
  3. Whether the employer or the worker supplies the instrumentalities, tools, and the place for the worker doing the work;
  4. Whether the worker has invested in the business, such as in the equipment or materials required by their task;
  5. Whether the service provided requires a special skill;
  6. The kind of occupation, and whether the work is usually done under the direction of the employer or by a specialist without supervision;
  7. The worker’s opportunity for profit or loss depending on their managerial skill;
  8. The length of time for which the services are to be performed;
  9. The degree of permanence of the working relationship;
  10. The method of payment, whether by time or by the job;
  11. Whether the worker hires their own employees;
  12. Whether the employer has a right to fire at will or whether a termination gives rise to an action for breach of contract; and
  13. Whether or not the worker and the potential employer believe they are creating an employer-employee relationship (this may be relevant, but the legal determination of employment status is not based on whether the parties believe they have an employer-employee relationship).

The determination of which independent contractor standard applies (the ABC Test or common law) Borelllo standard, and whether the applicable test’s criteria are met, can involve complicated analysis and is often not clear-cut. As such, it is important to consult with knowledgeable counsel on these determinations before assuming that a worker is an independent contractor.