Last year, California Governor Gavin Newsom signed Assembly Bill (“AB”) 5, which signaled a seismic shift in the way California employers classify workers as either independent contractors or employees. On September 4, 2020, Governor Newsom signed AB 2257, which modifies (slightly) some of the rules and provisions of AB 5.
To recap, AB 5 codified the California Supreme Court’s decision in Dynamex. In Dynamex, the Supreme Court rejected the multifactor test set forth in S.G. Borello & Songs, Inc. v. Department of Industrial Relations for classifying workers and announced a new, more objective standard for determining worker classification for the purposes of the California wage orders. Under this new standard, the burden is on the hiring entity to establish that the worker is an independent contractor who was not intended to be included within the coverage of the California wage orders. In order to satisfy this burden, the hiring entity must establish all of the following: (1) that the worker is free from the control and direction of the hiring entity in connection with the performance of work, (2) that the worker performs work that is outside the usual course of the hiring entity’s business, and (3) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The bad news for California employers is that AB 2257 does not reinstate Borello or repeal the three-part test set forth in AB 5. Rather, AB 2257 is limited to fine tuning some of the exemptions and creating a few new categories of exemptions, mostly for the entertainment industry. For example, it creates new exemptions for various music industry occupations in connection with the creation, marketing, promotion, or distribution of sound records or musical composition. It also includes youth sports coaching in the referral agency exemption previously contained in AB 5 and modifies AB 5’s “professional services” exemption to include certain “specialized performers.”
While AB 2257 is a welcome change for many employers, it falls far short of the changes hoped for by most California businesses. As such, most California employers must continue classifying their workers under the rules originally established by AB 5 and Dynamex. Any failure to do so could expose employers to significant risk and liability.