California AB-5 and AB-2257

California AB-5
a.k.a. Assembly Bill 5

Signed into law by California governor Gavin Newsom on September 18, 2019, AB-5 (aka Assembly Bill 5) was designed to protect gig workers against employers who don’t want to pay unemployment insurance, medical insurance, and other benefits that usually come from an employer. AB-5 could mistakenly reclassify millions of independent contractors as employees due to the requirement that service providers be classified as employees unless the hiring party can prove the provider is an independent contractor. This new law could also open the door for other states to enact similar laws.

AB-5 applies only in the state of California; to publishers who are headquartered in California or whose headquarters are out-of-state but who maintain a business presence in California. The law also applies to out-of-state publishers who use the services of freelancers living or working in California. Due to this, some out-of-state publishers have stopped using California-based freelancers in order to avoid the burdens of the new law. AB-5 does not apply to out-of-state publishers who use freelancers in their own states or in states other than California.

What Does AB-5 Mean for Freelancers?

The implementation of the bill has put many individuals who choose to be freelancers out of work. I am a case in point. Last year I was looking for work to fill in a slow season. I didn’t want anything full time or permanent. Writing content for companies seemed a perfect solution. I applied, took tests, endured waiting periods, and was finally approved to write articles for a couple of companies. I ranked at 4 stars out of 5, so I could write as many articles as I wanted on any subjects I chose. A month later I was informed that because of AB-5, I was going to be either limited to 30 articles a year or terminated altogether. Some of my articles were 400 words or less—something I could whip out in an afternoon. The payments for thirty of those wouldn’t even last a month, and then I’d be out of work. Yes, I could do thirty articles per company, but I only hired onto two of them. And now other companies wouldn’t hire me because I live in California.

Many freelance writers are stay-at-home moms, working while baby is napping to make enough money to pay for utilities or groceries. Others depend on freelance opportunities for their sole support, earning a full-time wage. Many are disabled or elderly, unable to work in an office even if an office would hire them. Thousands of people work this way, with full understanding of the lack of benefits, and do it happily.

Whose Job Is it to Prove a Worker’s Status?

The law places the burden of proof on the hiring entity to determine independent contractor status based on the ABC test. This strict, three-part test comes from the 2018 Dynamex Operations West v. Superior Court case. The court ruling dictates that all workers are presumed to be employees unless the hiring party is able to satisfy all three of the following conditions:

  •  A – The worker 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 (hiring entities can only impose control over employees. So if there is control exerted, the worker is deemed to be an employee).
  • B – The worker performs work that is outside the usual course of the hiring entity’s business (for instance, if a company’s normal business is asking people to write articles for them, the people they pay to write articles for them would be considered employees).
  • C – The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed (for example, if an individual writes articles and submits them on speculation to magazines, newspapers, or other businesses, he/she must have an established business with all required licenses, training, letterhead, etc. If the worker only receives income from one hiring entity, he/she would be considered an employee because a true business has more than one customer).

Many fields of business applied for and received exemptions from the law, including real estate agents, actors, singers, and others too numerous to mention. Some photojournalists and graphic designers have received exemptions. As of this date, to the best of my knowledge, writers and editors have not.

The Borello test

The new law applies to all California workers, except for those in several job categories who were specifically exempted from the strict ABC test. However, workers in these exempt categories are not automatically ICs. Instead, almost all such workers are required to pass muster as ICs under the Borello test, the test in effect before AB5 was enacted.

The Borello test (based on the California Supreme Court’s decision in S. G. Borello & Sons vs. Dept. of Industrial Relations) is similar to the right of control test used by the IRS. It’s not nearly as strict as the ABC test. Under this test, the most significant factor is whether the hiring firm has control or the right to control the worker both as to the work done and the manner and means in which it is performed. In addition, the following factors are to be considered:

1. Whether the worker is engaged in an occupation or business that is distinct from that of the hiring firm
2. Whether the work is part of the hiring firm’s regular business
3. Whether the hiring firm or the worker supplies the equipment, tools, and the place for the person doing the work
4. The worker’s financial investment in the equipment or materials required to perform the work
5. The skill required in the particular occupation
6. The kind of occupation—whether, in the locality, the work is usually done under the hiring firm’s direction or by a specialist without supervision
7. The worker’s opportunity for profit or loss depending on his or her own managerial skill
8. How long the services are to be performed
9. The degree of permanence of the working relationship
10. The payment method, whether by time or by the job, and
11. Whether the parties believe they are creating an employer/employee relationship.

No single factor in the Borello test is determinative, the first one—whether the individual’s work is the service or product that is the company’s primary business—is given the most weight.

AB-5 Revisited

Due to efforts from many creator advocacy groups, the California State Senate is considering amendments via bill AB-2257. Its criteria are more clearly defined, which should provide both freelance writers and the companies who use them greater certainty about their relationship. The new bill also creates more room for companies to continue to hire freelance writers as independent contractors without the fear of running afoul of California laws or facing fines. AB-2557 unanimously passed the California State Assembly in June and is currently under Senate Appropriations Committee consideration and has until August 31 before it must be sent to Governor Gavin Newsom for approval. If passed, it will take effect immediately. Here are the specifics:

1. Replaces the 35-submission threshold for a freelance writer, editor, copyeditor, illustrator, or newspaper cartoonist with an exemption to the ABC test if their contract specifies:

  • the rate of pay;
  • the allocation of intellectual property rights; and
  • an obligation to pay by a defined time.

and if the freelance worker isn’t:

  • replacing an employee performing the same work at the same volume;
  • primarily performing their work at the hiring entity’s business location; or
  • restricted from working for more than one hiring entity.

The hiring entity must be able to show that their relationship with the freelance worker meets the following six conditions:

  1. The individual [freelance worker] maintains a business location, which may include the individual’s residence, that is separate from the hiring entity. However, nothing in this subdivision prohibits an individual from choosing to perform services at the location of the hiring entity.
  2. 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 addition to any required professional licenses or permits for the individual to practice in their profession.
  3. The individual has the ability to set or negotiate their own rates for the services performed.
  4. Outside of project completion dates and reasonable business hours, the individual has the ability to set the individual’s own hours.
  5. 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.
  6. The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.

In addition to the new requirements, the Borello test will still be applied to misclassification violations.

AB-5 Information Resources

If you’ve read the law as written and are still unsure whether your freelance work is affected by AB-5, you can contact your local assembly and senate representatives and ask questions pertaining to your specific line of work. You can find the phone number for your area at https://www.dir.ca.gov/dlse/DistrictOffices.htm. You may also check with the California Labor Commissioner’s office of the State of California Department of Industrial Relations.

PEN Gold and CEC member Karen Saari / karensaari144@gmail.com / karensaari.com

Christian Editor Network Owner, Kathy Ide / kathyIde@christianeditor.com / kathyide.com