California’s “Business-to-Business” Exception To Strict Independent Contractor Definition
Effective January 1, 2020, a portion of Assembly Bill (AB) 5 — new Labor Code section 2750.3(e) — exempts bona fide business-to-business contracting relationships from the ultra-strict Dynamex “ABC” test for independent contractor classification. The previously prevailing “Borello” multi-factor balancing test for the contractor vs. employee classification will continue to apply to this exemption. See, California’s Independent Contractors (October, 2019).
A business entity that provides services (the “service provider”) to another business entity (the “hiring entity”) can fall within the business-to-business exception if:
Additionally, the service provider must:
For example, if interior design company Lovely Decors, Inc. (LDI) hires Modern Window Treatments, LLC (MWT) to install custom blinds at LDI’s corporate office and all of the above criteria are met, then the determination of employee or contractor status shall be governed by Borello. If, however, LDI hires MWT to install custom blinds for LDI’s customers, then this business-to-business exception to the rigid “Dynamex ABC” standard might not apply.
October 24, 2019Back to Blog
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