California Expands Exemptions for Independent Contractors

In September 2019, the state of California passed a law that made it more difficult for employers to classify workers as independent contractors. The law was received with much criticism because “nonsensical exemptions” for only a select professions.

The state legislature is back at it for 2020. On September 4, 2020, Governor Newsom signed AB 2257, which clarifies California’s independent contractor laws. The stringent ABC test remains the default standard, but there are now more exemptions for California business owners to learn thanks to heavy lobbying efforts. Well, not every lobbying effort created results. Gig economy companies, franchising, trucking and the motion picture and television industries all stuck out in receiving exemptions.

The new exemptions that were created by AB 2257 include:

Business-To-Business Exemption: This includes “bona fide business-to-business contracting relationships” where a contractor “acting as a sole proprietor, or a business entity formed as a partnership, limited liability company, limited liability partnership or corporation contracts to provide services to another such business.” The exemption now also applies where a “public agency or quasi-public corporation” has retained a contractor.

“Single-Engagement” Business-To-Business Exemption: There is now an exemption for individual businesspersons who contract with one another “for purposes of providing services at the location of a single-engagement event.” Certain criteria must be met (including a lack of control over the work, a written contract specifying payment amounts, and each individual’s maintenance of his or her own business location).

Referral Agency Exemption: Expands and clarifies the types of services covered by the existing exemption, including adding youth sports coaching, interpreting services, and consulting services. Clarifies that the exemption does not apply to referrals for services provided in certain high hazard industries and referrals for businesses that provide janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or constructions services other than minor home repair.

Music Industry & Performer Exemptions: Several exemptions have been created for the entertainment and music industry. The following occupations are now exempt: recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers and mixers, musicians, vocalists, photographers, independent radio promoters and certain types of publicists. Musicians and vocalists who do not receive royalties from a sound recording or musical composition must be paid the applicable minimum and overtime wages, as though they were employees. Additionally, musicians and musical groups engaged for a single-engagement live performance event (i.e., a concert) are exempt from the ABC Test unless they (a) perform as a symphony orchestra, or in a musical theater production, or at a theme park or amusement park, (b) are an event headliner in a venue with more than 1,500 attendees, or (c) perform at a festival that sells more than 18,000 tickets per day. Lastly, individual performance artists including comedians, improvisers, magicians and illusionists, mimes, spoken word performers, storytellers, and puppeteers who perform original work they created will qualify for an exemption so long as they are free from the hirer’s control, retain the intellectual property rights related to their performance, set their terms of work and negotiate their rates.

Professional Services Exemption: The lengthy list of occupations that may qualify for an exemption from the ABC Test under the professional services exemption has been expanded. These additional professional services include: 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. AB 2257 also removes the submission cap on freelance writers and instead requires that businesses refrain from displacing existing employees in order to utilize one of these types of contractors.

Miscellaneous Exemptions: Subject to certain requirements, AB 2257 adds exemptions for the following occupations: manufactured housing salespersons; certain individuals engaged by international exchange visitor programs; and competition judges (including amateur umpires and referees).

This list is bound to keep growing, so check our blog frequently for updates.

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