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California AB-5 and AB-2257
a.k.a. Assembly Bill 5
Signed into law by California Governor Gavin Newsom on September 18, 2019, AB-5 (aka Assembly Bill 5) could have mistakenly reclassified millions of independent contractors as employees though the bill was designed to protect gig workers against employers who don’t want to pay employer provided benefits. The law applies to California companies, companies outside of California who do business with California based freelancers, and could potentially 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.
Due to efforts from many creator advocacy groups, Governor Newsom approved amendments to the legislation via bill AB-2257, signed into law September 4, 2020. 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.
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 Courtcase. 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.