In 2018, the California Supreme Court unanimously ruled in the “Dynamex” case[1] that workers have to meet all three prongs of a strict “ABC Test” in order to be properly classified as an independent contractor in this state. In 2019, the California Legislature adopted and Governor Gavin Newsom signed Assembly Bill (AB) 5 by Assembly Member Lorena Gonzalez (D-San Diego) as Chapter 296 which codified the ABC Test in California Labor Code Section 2750.3 and enacted over 50 exemptions from the ABC Test.

As the California Legislative Session concluded on August 31, the Legislature adopted AB 2257 (Gonzalez) and Governor Newsom signed the measure on September 4 as Chapter 38. The following is a review of the provisions of AB 2257. In Section One[2] of the bill, Labor Code Section 2750.3 was repealed.

Section Two of the bill added Article 1.5, commencing with Section 2775, to Chapter 2[3] of Division 3[4] of the Labor Code. Article 1.5 is titled “Worker Status: Employees.” Section 2775 provides definitions of the terms “Dynamex”[5] and “Borello”[6] in subdivision (a). Subdivision (b) of Section 2775 sets forth the ABC Test in statute and applies the ABC Test to the Labor Code, Unemployment Insurance Code, and Industrial Welfare Commission Wage Orders.[7]

ABC Test Codified

The statutory ABC Test set forth in Section 2775 codified the language used by the state Supreme Court in its Dynamex decision.[8] “A person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

“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.[9]

“The person performs work that is outside the usual course of the hiring entity’s business.[10]

“The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”[11]

In addition, AB 2257 specifies that, despite the language of the ABC Test in Subdivision (b)(1), any exceptions to the terms “employee,” “employer,” “employ,” or “independent contractor,” and any extensions of employer status or liability, that are expressly made by a provision of the Labor Code, the Unemployment Insurance Code, or in an applicable order of the Industrial Welfare Commission[12], will remain in effect.

AB 2257 also provides that, if a court of law rules that the ABC Test cannot be applied to a particular context on grounds other than an express exception to employment status as provided[13], then the determination of employee or independent contractor status in that context is instead governed by the California Supreme Court’s decision in the Borello case[14].

Business-to-Business Exemption

In Labor Code Section 2776, the business-to-business exemption is established. Specifically, the ABC Test and the Dynamex decision do not apply to a bona fide business-to-business contracting relationship if specified conditions are met.[15] The first condition is that the individual must be acting as a sole proprietor, or that there is a business entity formed as a partnership, limited liability company, limited liability partnership, or corporation[16], that contracts to provide services to another such business or to a public agency or quasi-public corporation[17].[18]

If this first condition is met, then the determination of employee or independent contractor status of the business service provider is governed by the Borello decision if the contracting business demonstrates that all of the following twelve criteria are satisfied[19]:

The business service provider is free from the control and direction of the contracting business entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.[20]

The business service provider is providing services directly to the contracting business rather than to customers of the contracting business. This subparagraph does not apply if the business service provider’s employees are solely performing the services under the contract under the name of the business service provider and the business service provider regularly contracts with other businesses.[21]

The contract with the business service provider is in writing and specifies 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.[22]

If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration.[23]

The business service provider maintains a business location, which may include the business service provider’s residence, that is separate from the business or work location of the contracting business.[24]

The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.[25]

The business service provider can contract with other businesses to provide the same or similar services and maintain a clientele without restrictions from the hiring entity.[26]

The business service provider advertises and holds itself out to the public as available to provide the same or similar services.[27]

Consistent with the nature of the work, the business service provider provides its own tools, vehicles, and equipment to perform the services, not including any proprietary materials that may be necessary to perform the services under the contract.[28]

The business service provider can negotiate its own rates.[29]

Consistent with the nature of the work, the business service provider can set its own hours and location of work.[30]

The business service provider is not performing the type of work for which a license from the Contractors’ State License Board is required[31].[32]

In addition, when two bona fide businesses are contracting with one another under the conditions set forth above[33], 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 the ABC Test.[34]

Finally, Section 2776 is deemed to not alter or supersede any existing rights under the Labor Code dealing with the liability of certain business entities that contract for labor[35].[36]

Referral Agency Exemption

In Labor Code Section 2777, the referral agency exemption is established. Specifically, the ABC Test and the Dynamex decision do not apply to the relationship between a referral agency and a service provider if specified conditions are met.[37] The first condition is that the individual must be acting as a sole proprietor, or that there is a business entity formed as a partnership, limited liability company, limited liability partnership, or corporation[38], that provides services to clients through a referral agency.[39]

If this first condition is met, then the determination of employee or independent contractor status of the service provider is governed by the Borello decision if the referral agency demonstrates that all of the following eleven criteria are satisfied[40]:

The service provider is free from the control and direction of the referral agency in connection with the performance of the work for the client, both as a matter of contract and in fact.[41]

If the work for the client is performed in a jurisdiction that requires the service provider to have a business license[42] or business tax registration in order to provide the services under the contract, the service provider shall certify to the referral agency that they have the required business license or business tax registration. The referral agency shall keep the certifications for a period of at least three years.[43]

If the work for the client requires the service provider to hold a state contractor’s license[44], the service provider has the required contractor’s license.[45]

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. The referral agency shall keep the certifications for a period of at least three years.[46]

The service provider delivers services to the client under the service provider’s name, without being required to deliver the services under the name of the referral agency.[47]

The service provider provides its own tools and supplies to perform the services.[48]

The service provider is customarily engaged, or was previously engaged, in an independently established business or trade of the same nature as, or related to, the work performed for the client.[49]

The referral agency does not restrict the service provider from maintaining a clientele and the service provider is free to seek work elsewhere, including through a competing referral agency.[50]

The service provider sets their own hours and terms of work or negotiates their hours and terms of work directly with the client.[51]

Without deduction by the referral agency, the service provider sets their own rates, negotiates their rates with the client through the referral agency, negotiates rates directly with the client, or is free to accept or reject rates set by the client.[52]

The service provider is free to accept or reject clients and contracts, without being penalized in any form by the referral agency. This paragraph does not apply if the service provider accepts a client or contract and then fails to fulfill any of its contractual obligations.[53]

In addition, in Subdivision (b), a number of important definitions are provided for purposes of Section 2777. First, the term “client”[54] means a person[55] or a business[56] that utilizes a referral agency to contract for services that are performed by the service provider. For a business that wants to claim the referral agency exemption, the responsibility is placed on the business and the services that are contracted must not be provided on a regular basis by employees of the client business, or the services must be outside of the client’s usual course of business.[57]

Second, the term “referral agency”[58] means a business that provides clients with referrals for service providers to provide services under a contract, with specified services excepted[59].[60] Under this section, referrals for services “include, but are not limited to, 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”.[61]

However, referrals for services do not include services provided in an industry designated by the Division of Occupational Safety and Health or the Department of Industrial Relations as a high hazard industry[62] or referrals for businesses that provide janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or construction services other than minor home repair.[63]

Third, the term “referral agency contract”[64] is the agency’s contract with clients and service providers governing the use of its intermediary services.[65] A referral agency’s contract may include a fee or fees to be paid by the client for utilizing the referral agency.[66]

Fourth, the term “service provider”[67] means an individual acting as a sole proprietor or business entity that agrees to the referral agency’s contract and uses the referral agency to connect with clients.

Fifth, the term “tutor”[68] means a person who develops and teaches their own curriculum, teaches curriculum that is proprietarily and privately developed, or provides private instruction or supplemental academic enrichment services by using their own teaching methodology or techniques. Note that a “tutor” does not include an individual who contracts with a local education agency or private school through a referral agency for purposes of teaching students of a public or private school in a classroom setting.[69]

Sixth, the term “youth sports coaching”[70] means services provided by a youth sports coach who develops and implements their own curriculum, which may be subject to requirements of a youth sports league, for an athletic program in which youth who are 18 years of age or younger predominantly participate and that is organized for the purposes of training for and engaging in athletic activity and competition. Note that “youth sports coaching” does not mean services provided by an individual who contracts with a local education agency or private school through a referral agency for purposes of teaching students of a public or private school.[71]

Seventh, the term “interpreting services”[72] means services that are provided by a certified or registered interpreter in a language with an available certification or registration through specified entities[73] or services provided by an interpreter in a language without an available certification through specified entities[74].[75]

Eighth, the term “consulting”[76] means providing substantive insight, information, advice, opinions, or analysis that requires the exercise of discretion and independent judgment and is based on an individual’s knowledge or expertise of a particular subject matter or field of study.

Ninth, the term “animal services”[77] means services related to daytime and nighttime pet care including pet boarding[78].

Finally, the determination of whether an individual worker is an employee of a service provider or whether an individual worker is an employee of a client is governed by the ABC Test.[79]

Professional Services Exemption

In Labor Code Section 2778, the professional services exemption is established. Specifically, the ABC Test and the Dynamex decision do not apply to a contract for professional services.[80] The determination of employee or independent contractor status of the individual is governed by the Borello decision if the hiring entity demonstrates that all of the following six criteria are satisfied[81]:

The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity. [82] Note that nothing in this paragraph prohibits an individual from choosing to perform services at the location of the hiring entity.[83]

If work is performed more than six months after the effective date of this section and the work is performed in a jurisdiction that requires the individual to have a business license or business tax registration, the individual has the required business license or business tax registration in order to provide the services under the contract, in addition to any required professional licenses or permits for the individual to practice in their profession.[84]

The individual has the ability to set or negotiate their own rates for the services performed.[85]

Outside of project completion dates and reasonable business hours, the individual has the ability to set the individual’s own hours.[86]

The individual is customarily engaged in the same type of work performed under contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work.[87]

The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.[88]

In addition, in Subdivision (b), a number of important definitions are provided for purposes of Section 2778. First, the term “individual”[89] includes an individual providing services as a sole proprietor or other business entity.

Second, the term “professional services”[90] means services that meet any of the following:

Marketing, provided that the contracted work is original and creative in character and the result of which depends primarily on the invention, imagination, or talent of the individual or work that is an essential part of or necessarily incident to any of the contracted work.[91]

Administrator of human resources, provided that the contracted work is predominantly intellectual and varied in character and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time.[92]

Travel agent services[93] that are provided by either a person regulated by the Attorney General[94] or an individual who is a seller of travel[95].

Graphic design.[96]

Grant writer.[97]

Fine artist[98].[99]

Services provided by an enrolled agent[100].[101]

Payment processing agent through an independent sales organization.[102]

Services provided by any of the following[103]:

By a still photographer, photojournalist, videographer, or photo editor.[104] These individuals must meet additional requirements.[105] Note that his subclause is not applicable to a still photographer, photojournalist, videographer, or photo editor who works on motion pictures, which is inclusive of, but is not limited to, theatrical or commercial productions, broadcast news, television, and music videos.[106] Nothing in this section restricts a still photographer, photojournalist, photo editor, or videographer from distributing, licensing, or selling their work product to another business, except as prohibited under copyright laws or workplace collective bargaining agreements.[107]

To a digital content aggregator by a still photographer, photojournalist, videographer, or photo editor.[108]

In addition, this subparagraph includes several definitions[109]. First, the term “photo editor” means an individual who performs services ancillary to the creation of digital content, such as retouching, editing, and keywording.[110] Second, the term “digital content aggregator” means a licensing intermediary that obtains a license or assignment of copyright from a still photographer, photojournalist, videographer, or photo editor for the purposes of distributing that copyright by way of sublicense or assignment, to the intermediary’s third-party end users.[111]

Services provided by a freelance writer, translator, editor, copy editor, illustrator, or newspaper cartoonist who works under a written contract that specifies the rate of pay, intellectual property rights, 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.[112]

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 in any format or media, who works under a written contract that specifies the rate of pay, intellectual property rights 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.[113]

Services provided by a licensed esthetician, licensed electrologist, licensed manicurist, licensed barber, or licensed cosmetologist provided that the individual[114]:

Sets their own rates, processes their own payments, and is paid directly by clients.[115]

Sets their own hours of work and has sole discretion to decide the number of clients and which clients for whom they will provide services.[116]

Has their own book of business and schedules their own appointments.[117]

Maintains their own business license for the services offered to clients.[118]

If the individual is performing services at the location of the hiring entity, then the individual issues a Form 1099 to the salon or business owner from which they rent their business space.[119]

This subparagraph shall become inoperative, with respect to licensed manicurists, on January 1, 2022.[120]

A specialized performer hired by a performing arts company or organization to teach a master class[121] for no more than one week. [122]

Services provided by an appraiser[123].[124]

Registered professional foresters[125].[126]

In Labor Code Section 2778(c)[127], the ABC Test and the Dynamex decision do not apply to the following professions which are subject to the Business and Professions Code:[128]

A real estate licensee licensed by the State of California[129] for whom the determination of employee or independent contractor status is governed by Business and Professions Code Section 10032(b). [130] Note that, if Section 10032(b) is not applicable, then this determination is governed as follows:

For purposes of unemployment insurance[131].[132]

For purposes of workers’ compensation[133].[134]

For all other purposes in the Labor Code by the Borello decision. [135] Note that the statutorily imposed duties of a responsible broker under Business and Professions Code Section 10015.1 are not factors to be considered under the Borello test.[136]

A home inspector[137] and subject to specified provisions of the Business and Professions Code[138].[139]

A repossession agency[140] for whom the determination of employee or independent contractor status is governed by Business and Professions Code Section 7500.2, if the repossession agency is free from the control and direction of the hiring person or entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.[141]

Two Individuals Exemption

In Labor Code Section 2779, the two individuals exemption is established. Specifically, the ABC Test and the Dynamex decision do not apply to the relationship between two individuals where each acts as a sole proprietor or separate business entity.[142] The separate business entity must be formed as a partnership, limited liability company, limited liability partnership, or corporation.[143]

In addition, the individuals must be performing work pursuant to a contract for purposes of providing services at the location of a single-engagement event and the following eight conditions must be met[144]:

Neither individual is subject to control and direction by the other, in connection with the performance of the work, both under the contract for the performance of the work and in fact.[145]

Each individual has the ability to negotiate their rate of pay with the other individual.[146]

The written contract between both individuals specifies the total payment for services provided by both individuals at the single-engagement event, and the specific rate paid to each individual.[147]

Each individual maintains their own business location, which may include the individual’s personal residence.[148]

Each individual provides their own tools, vehicles, and equipment to perform the services under the contract.[149]

If the work is performed in a jurisdiction that requires an individual to have a business license or business tax registration, then each individual has the required business license or business tax registration.[150]

Each individual is customarily engaged in the same or similar type of work performed under the contract or each individual separately holds themselves out to other potential customers as available to perform the same type of work.[151]

Each individual can contract with other businesses to provide the same or similar services and maintain their own clientele without restrictions.[152]

In addition, this section contains two definitions. First, the term “single-engagement event” means 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.[153] Second, the term “services” do not include services provided in an industry designated by the Division of Occupational Safety and Health or the Department of Industrial Relations as a high hazard industry[154].[155]

Sound Recording or Musical Composition Exemptions

In Labor Code Section 2780, the sounds recording or musical composition exemption is established. Specifically, the ABC Test and the Dynamex decision do not apply to specified occupations in connect with creating, marketing, promoting, or distributing sound recordings or musical compositions.[156] Instead, the Borello decision applies to all of the following occupations:[157]

Recording artists, subject to conditions.[158]

Songwriters, lyricists, composers, and proofers.[159]

Managers of recording artists.[160]

Record producers and directors.[161]

Musical engineers and mixers engaged in the creation of sound recordings.[162]

Musicians engaged in the creation of sound recordings, subject to conditions.[163]

Vocalists, subject to the below.[164]

Photographers working on recording photo shoots, album covers, and other press and publicity purposes.[165]

Independent radio promoters.[166]

Any other individual 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.[167]

 However, this subdivision does not apply to any of the following occupations[168]:

Film and television unit production crews[169] working on live or recorded performances for audiovisual works, including still photographers and cinematographers.[170]

Publicists who are not independent music publicists.[171]

In addition, the terms and conditions of any current or future collective bargaining agreements or contractual agreements between the applicable labor unions and respective employers govern the determination of employment status in all events.[172]

Moreover, the following applies to recording artists, musicians, and vocalists[173]:

Recording artists, musicians, and vocalists are not precluded from organizing under applicable provisions of labor law, or otherwise exercising rights granted to employees under federal law[174].[175]

Musicians and vocalists who are not royalty-based participants in the work created during any specific engagement[176]. These must be treated as employees solely for purposes of receiving minimum and overtime wages for hours worked during the engagement, as well as any damages and penalties due to the failure to receive minimum or overtime wages[177].[178]

Also, the term “royalty-based participant” means an individual who has either negotiated for the collection or direct administration of royalties derived from the exploitation of a sound recording or musical composition, or is entitled to control, administer or collect royalties related to the exploitation of a sound recording or musical composition as a co-author or joint owner.[179]

In all events, the terms and conditions of any current or future collective bargaining agreements or contractual agreements between the applicable labor unions and respective employers govern the determination of employment status.[180]

Finally, the ABC Test and the Dynamex decision do not apply to a musician or musical group for the purpose of a single-engagement live performance event.[181] The determination of employee or independent contractor status of the individual is governed by the Borello decision, unless one of the following conditions is met[182]:

The musical group is performing as a symphony orchestra, the musical group is performing at a theme park or amusement park, or a musician is performing in a musical theater production.[183]

The musical group is an event headliner for a performance taking place in a venue location with more than 1,500 attendees.[184]

The musical group is performing at a festival that sells more than 18,000 tickets per day.[185]

Note that this provision is inclusive of rehearsals related to the single-engagement live performance event.[186]

In addition, in Subdivision (b)(3), a number of important definitions are provided for purposes of Section 2780. First, the term “event headliner”[187] means the musical group that appears most prominently in an event program, advertisement, or on a marquee.

Second, the term “festival”[188] means a single day or multiday event in a single venue location that occurs once a year, featuring performances by various musical groups.

Third, the term “musical group”[189] means a solo artist, band, or a group of musicians who perform under a distinct name.

Fourth, the term “musical theater production”[190] means a form of theatrical performance that combines songs, spoken dialogue, acting, and dance.

Fifth, the term “musician”[191] means an individual performing instrumental, electronic, or vocal music in a live setting.

Sixth, the term “single-engagement live performance event”[192] means a stand-alone musical performance in a single venue location, or a series of performances in the same venue location no more than once a week. Note that this does not include performances that are part of a tour or series of live performances at various locations.[193]

Seventh, the term “venue location”[194] means an indoor or outdoor location used primarily as a space to hold a concert or musical performance. Moreover, “venue location” includes, but is not limited to, a restaurant, bar, or brewery that regularly offers live musical entertainment.

In addition, the ABC Test and the Dynamex decision do not apply to specified individuals.[195] And, the determination of employee or independent contractor status of the individual is governed by the Borello decision.[196]

An individual performance artist performing material that is their original work and creative in character and the result of which depends primarily on the individual’s invention, imagination, or talent, given all of the following four conditions are satisfied[197]:

The individual is free from the control and direction of the hiring entity in connection with the performance of the work, both as a matter of contract and in fact.[198] Note that this includes, and is not limited to, the right for the performer to exercise artistic control over all elements of the performance.[199]

The individual retains the rights to their intellectual property that was created in connection with the performance.[200]

Consistent with the nature of the work, the individual sets their terms of work and has the ability to set or negotiate their rates.[201]

The individual is free to accept or reject each individual performance engagement without being penalized in any form by the hiring entity.[202]

The term “individual performance artist” includes, but is not limited to, an individual performing comedy, improvisation, stage magic, illusion, mime, spoken word, storytelling, or puppetry.[203]

This subdivision does not apply to an individual participating in a theatrical production, or a musician or musical group[204].[205]

In all events, the terms and conditions of any current or future collective bargaining agreements or contractual agreements between the applicable labor unions and respective employer govern the determination of employment status.[206]

Construction Subcontractor Exemption

In Labor Code Section 2781, the construction subcontractor exemption is established. Specifically, the ABC Test and the Dynamex decision do not apply to the relationship between a contractor and an individual performing work pursuant to a subcontract in the construction industry.[207] The determination of whether the individual is an employee of the contractor is governed by Labor Code Section 2750.5 and the Borello decision if the contractor demonstrates that all of the following criteria are satisfied[208]:

The subcontract is in writing.[209]

The subcontractor is licensed by the Contractors’ State License Board and the work is within the scope of that license.[210]

If the subcontractor is domiciled in a jurisdiction that requires the subcontractor to have a business license or business tax registration, the subcontractor has the required business license or business tax registration.[211]

The subcontractor maintains a business location that is separate from the business or work location of the contractor.[212]

The subcontractor has the authority to hire and to fire other persons to provide or to assist in providing the services.[213]

The subcontractor assumes financial responsibility for errors or omissions in labor or services as evidenced by insurance, legally authorized indemnity obligations, performance bonds, or warranties relating to the labor or services being provided.[214]

The subcontractor is customarily engaged in an independently established business of the same nature as that involved in the work performed.[215]

However, these provisions do not apply to a subcontractor providing construction trucking services for which a contractor’s license is not required[216] so long as all of the following four criteria are satisfied[217]:

The subcontractor is a business entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation.[218]

For work performed after January 1, 2020, the subcontractor is registered with the Department of Industrial Relations as a public works contractor[219] regardless of whether the subcontract involves public work.[220]

The subcontractor utilizes its own employees to perform the construction trucking services, unless the subcontractor is a sole proprietor who operates their own truck to perform the entire subcontract and holds a valid motor carrier permit issued by the Department of Motor Vehicles.[221]

The subcontractor negotiates and contracts with, and is compensated directly by, the licensed contractor.[222]

For work performed after January 1, 2020, any business entity that provides construction trucking services to a licensed contractor utilizing more than one truck must be deemed the employer for all drivers of those trucks.[223]

The term “construction trucking services” means hauling and trucking services provided in the construction industry pursuant to a contract with a licensed contractor utilizing vehicles that require a commercial driver’s license to operate or have a gross vehicle weight rating of 26,001 or more pounds.[224]

This subdivision only applies to work performed before January 1, 2022.[225]

These provisions do not prohibit an individual who owns their truck from working as an employee of a trucking company and utilizing that truck in the scope of that employment. [226] In addition, an individual employee providing their own truck for use by an employer trucking company must be reimbursed by the trucking company for the reasonable expense incurred for the use of the employee-owned truck.[227]

Data Aggregator Exemption

In Labor Code Section 2782, the data aggregator exemption is established. Specifically, the ABC Test and the Dynamex decision do not apply to the relationship between a data aggregator and an individual providing feedback to the data aggregator.[228] The Borello decision applies under the following four conditions[229]:

The individual is free from control and direction from the data aggregator with respect to the substance and content of the feedback.[230]

Any consideration paid for the feedback provided, if prorated to an hourly basis, is an amount equivalent to or greater than the minimum wage.[231]

The nature of the feedback requested requires the individual providing feedback to the data aggregator to exercise independent judgment and discretion.[232]

The individual has the ability to reject feedback requests, without being penalized in any form by the data aggregator.[233]

Subdivision (a)(2) provides definitions for this section. First, the term “data aggregator” means a business, research institution, or organization that requests and gathers feedback on user interface, products, services, people, concepts, ideas, offerings, or experiences from individuals willing to provide it.[234] Second, “minimum wage” means a local or the state minimum wage, whichever is greater.[235]

Specified Occupations Exempted

In Labor Code Section 2783, specified occupations are provided an exemption. Specifically, the ABC Test and the Dynamex decision do not apply to the following occupations.[236] The determination of employee or independent contractor status for individuals in these occupations is governed by the Borello decision.[237]

A person or organization who is licensed by the Department of Insurance[238] or a person who provides underwriting inspections, premium audits, risk management, or loss control work for the insurance and financial service industries.[239]

A physician and surgeon, dentist, podiatrist, psychologist, or veterinarian licensed by the State of California[240] performing professional or medical services provided to or by a health care entity, including an entity organized as a sole proprietorship, partnership, or professional corporation[241]. Note that this provision does not circumvent, undermine, or restrict the rights under federal law to organize and collectively bargain.[242]

An individual who holds an active license from the State of California and is practicing one of the following recognized professions: lawyer, architect, landscape architect, engineer, private investigator, or accountant.[243]

A securities broker-dealer or investment adviser or their agents and representatives that are either of the following[244]:

Registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority.[245]

Licensed by the State of California[246].[247]

A direct sales salesperson[248] so long as the conditions for exclusion from employment under that section are met.[249]

A manufactured housing salesperson who is subject to all statutory obligations[250], including all regulations promulgated by the Department of Housing and Community Development relating to manufactured home salespersons, as well as all other obligations of manufactured housing salespersons to members of the public.[251]

A commercial fisher working on an American vessel.[252] In addition, in Subdivision (g)(1), a number of important definitions are provided for purposes of Section 2783. First, the term “American vessel”[253] has the same meaning as the term used in the Unemployment Insurance Code[254].

Second, the term “commercial fisher”[255] means a person who has a valid, unrevoked commercial fishing license[256].

Third, the phrase “working on an American vessel”[257] means the taking or the attempt to take fish, shellfish, or other fishery resources of the state by any means, and includes each individual aboard an American vessel operated for fishing purposes who participates directly or indirectly in the taking of these raw fishery products, including maintaining the vessel or equipment used aboard the vessel. However, “working on an American vessel” does not apply to anyone aboard a licensed commercial fishing vessel as a visitor or guest who does not directly or indirectly participate in the taking.

This subdivision becomes inoperative on January 1, 2023, unless extended by the Legislature.[258]

A newspaper distributor working under contract with a newspaper publisher and a newspaper carrier working under contract either with a newspaper publisher or newspaper distributor.[259] In addition, in Subdivision (h)(1), a number of important definitions are provided for purposes of Section 2783.

First, the term “newspaper”[260] means a newspaper of general circulation[261] and any other publication circulated to the community in general as an extension of or substitute for that newspaper’s own publication, whether that publication be designated a “shoppers’ guide,” as a zoned edition, or otherwise.

Second, the term “publisher”[262] means the natural or corporate person that manages the newspaper’s business operations, including circulation. Third, the term “newspaper distributor”[263] means a person or entity that contracts with a publisher to distribute newspapers to the community. Fourth, the term “carrier”[264] means a person who effects physical delivery of the newspaper to the customer or reader.

In addition, this subdivision becomes inoperative on January 1, 2021, unless extended by the Legislature.[265]

An individual who is engaged by an international exchange visitor program that has obtained and maintains full official designation by the United States Department of State[266] for the purpose of conducting, instead of participating in, international and cultural exchange visitor programs and is in full compliance with applicable federal regulations[267].[268]

A competition judge with a specialized skill set or expertise providing services that require the exercise of discretion and independent judgment to an organization for the purposes of determining the outcome or enforcing the rules of a competition. This includes, but is not limited to, an amateur umpire or referee.[269]

Motor Club Exemption

In Labor Code Section 2784, the motor club exemption is established. Specifically, the ABC Test and the Dynamex decision do not apply to the relationship between a motor club holding a certificate of authority[270] and an individual performing services pursuant to a contract between the motor club and a third party to provide motor club services utilizing the employees and vehicles of the third party.[271]

Instead, the determination of employee or independent contractor status of the business service provider is governed by the Borello decision if the motor club demonstrates that the third party is a separate and independent business from the motor club.[272]

Miscellaneous Provisions

Section 2785 provides that Labor Code Section 2775 “does not constitute a change in, but is declaratory of, existing law with regard to wage orders of the Industrial Welfare Commission and violations of this code relating to wage orders”.[273] In addition, “insofar as the application of Sections 2776 to Section 2784 would relieve an employer from liability, those sections shall apply retroactively to existing claims and actions to the maximum extent permitted by law.”[274]

With specified exceptions, Article 1.5 applies to work performed on or after January 1, 2020.[275] Finally, if a hiring entity can demonstrate compliance with all of conditions set forth in any one of Sections 2776 to 2784, then Section 2775 and the Dynamex decision do not apply to that entity, and instead the determination of an individual’s employment status as an employee or independent contractor is governed by the Borello decision.[276]

Injunctive Relief Actions

Section 2786 provides that, in addition to any other remedies available, an action for injunctive relief to prevent the continued misclassification of employees as independent contractors may be prosecuted against the putative employer in a court of competent jurisdiction by the Attorney General, by a district attorney, or by a city attorney of a city having a population in excess of 750,000, or by a city attorney in a city and county or, with the consent of the district attorney, by a city prosecutor in a city having a full-time city prosecutor in the name of the people of the State of California upon their own complaint or upon the complaint of a board, officer, person, corporation, or association.

Severability Clause

Section 2787 provides that the provisions of this new Article 1.5 in the Labor Code are severable.[277]

Revenue and Taxation Code Provisions

Section Three of the bill amended California Revenue and Taxation Code (CRTC) Section 17020.12 to add Subdivision (a) and create Subdivision (b) with the prior provision of law. Section Three of the bill retained the existing language of CRTC Section 17020.12 and designated it as Subdivision (b)[278]. New Subdivision (a) was added to make clear that, for purposes of the CRTC dealing with the Personal Income Tax Law[279], the determination of whether a worker is an employee is made according to the Labor Code provisions established by AB 2257.

Section Four of the bill added Section 18406 to the CRTC dealing with the Administration of Franchise and Income Tax Laws[280]. This new provision of law also makes clear that, for purposes of the CRTC, the determination of whether a worker is an employee is made according to the Labor Code provisions established by AB 2257.[281]

Section Five of the bill added Section 21003.5 to the CRTC dealing with the Taxpayers’ Bill of Rights.[282] This new provision of law also makes clear that, for purposes of the CRTC, the determination of whether a worker is an employee is made according to the Labor Code provisions established by AB 2257.[283]

Section Six of the bill amended Section 23045.6 of the CRTC to add Subdivision (a) and create Subdivision (b) with the prior provision of law. Section Three of the bill retained the existing language of CRTC Section 23045.6 and designated it as Subdivision (b).[284] New Subdivision (a) was added to make clear that, for purposes of the CRTC dealing with the Corporation Tax Law[285], the determination of whether a worker is an employee is made according to the Labor Code provisions established by AB 2257.

Section Seven of the bill added Section 61001 to the CRTC dealing with the Individual Shared Responsibility Penalty.[286]  This new provision of law also makes clear that, for purposes of the CRTC, the determination of whether a worker is an employee is made according to the Labor Code provisions established by AB 2257.[287]

Urgency Clause

Section Eight[288] of the bill declares the measure to be an urgency statute[289] so that it takes effect immediately when chaptered into law, which was September 4, 2020.