California Remodels Exceptions to Its Strict Independent Contractor Test

Beginning with the California Supreme Court’s Dynamex Operations West, Inc. v. Superior Court decision (April, 2018) and continuing with the passage of AB 5, effective January 1, 2020, state policymakers have sought to limit the definition of “independent contractors” under a severe ABC test.

The trend has been aimed particularly at curtailing the independent contractor model exemplified by gig economy giants such as Uber and Lyft. See, Game Changer – Independent Contractor Status in California Now Falls Under Radically Different Rules (June 1, 2018); California’s Independent Contractors, An Endangered Species by Newly Enacted AB5(October 4, 2019).

Widespread dissatisfaction over AB 5’s limited exemptions has led Sacramento to replace that law with AB 2257, effective September 4, 2020. The new standards – found in Labor Code sections 2775-2783 – uphold the ABC test while restating and broadening the exceptions, including:

• Wider business-to-business exceptions including one for sole proprietor services “at the location of a single-engagement event”;
• An expanded referral agency exception in all service industries except high hazard and “janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or construction services other than minor home repair”;
• Exceptions for professional services, including marketing; human resources; travel agency; graphic design; grant writing; fine artists; enrolled agents (certain tax consulting); payment processing; still photography; photojournalism, videography, photo editing, and digital content aggregators servicing such persons; licensed esthetician, cosmetologist, electrologist, barber, and manicurist services; specialized performer teaching master classes; appraiser; registered forester; real estate licensee; home inspector; and repossession agency;
• Several creative activities, including creation of sound recordings and musical compositions; film and television unit production crews; individual musicians performing original creations; and individual performance artists;
• Certain contractor – subcontractor relations in the building trades;
• Data aggregators (e.g. online customer and website use info); and
• Doctors, lawyers, dentists, psychologists, veterinarians, lawyers, architects, landscape architects, engineers, private investigators, accountants, and certain insurance industry professionals.

Such excepted businesses and individuals must still meet the multi-factor balancing test for independence specified in the California Supreme Court’s 1989 Borello Sons Inc. v. Dept. of Industrial Relations decision. See Dodging the Bullet – The Industries and Professions Not Subject to California’s New Independent Contractor Restrictions (October 2019).

We will address particular features of the new law in upcoming articles.

See also:

• Making Dynamex Retroactive – Federal Appeals Court Rules New Independent Contractor ABC Test Applies Before It Existed (May 31, 2019)
• Independent Contractor or Employee? – California Legislature Dealing with Competing Proposals to Kill or Expand New Dynamex Test (April 19, 2019)
• Independent Contractor Status? It Depends – Radically New Dynamex Test Only Applies to Certain Employee Classification Cases (November 9, 2018)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin

September 11, 2020