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California - Worker Classification Exemptions

On September 4, 2020, California Governor Gavin Newsom signed legislation (AB 2257) expanding the exemptions to the state’s ABC test, which is used to determine whether an individual is an employee or an independent contractor (worker classification) under the California Labor Code, Unemployment Insurance code, and Industrial Welfare Commission wage orders.

Under the ABC test, paid workers must be classified as employees — not independent contractors — unless the hiring entity can demonstrate all of the following:

  • (A) They are free from the control and direction of the hiring entity regarding the work they perform, in practice and under their contract (they make their own schedule, do not answer to a supervisor, perform duties according to their own custom).
  • (B) They perform work that is outside the usual course of the hiring entity’s business (they are a baker, but for a company that does not specialize in baking).
  • (C) They are customarily engaged in an independently established trade, occupation, or business of the same nature as that of the work performed for the hiring entity (they mostly earn income by baking, and that’s exactly what they’re doing for the hiring entity).

Additionally, the law now exempts certain occupations from the ABC test and instead applies the multifactor Borello test, which considers several independent factors in determining employment status. Workers exempt from ABC but considered under Borello include: 

  • Musicians or musical groups for single-engagement live performance events, under specific terms and conditions.
  • Individual performance artists presenting original, creative work that is unique to only their invention, imagination, or talent.
  • Still photographers, photojournalists, videographers, or photo editors under a written contract with specific terms along with the services they provide to digital content aggregators.
  • Fine artists, freelance writers, translators, editors, content contributors, advisors, narrators, cartographers, producers, copy editors, illustrators, or newspaper cartoonists under a written contract with specific terms.
  • People who provide underwriting inspections and other services for the insurance industry.
  • Manufactured housing salespersons, subject to certain obligations.
  • International exchange visitor program workers.
  • Consultants providing substantive advice that requires their discretion and independent judgment, which is based on their own expertise of a particular subject or field of study.
  • Animal services related to daytime and nighttime pet care including pet boarding.
  • Competition judges with specialized skills.
  • Licensed landscape architects.
  • Specialized performers teaching master classes.
  • Registered professional foresters.
  • Real estate appraisers and home inspectors.
  • Feedback aggregators.

The law also:

  • Creates an exemption for business-to-business relationships between two or more sole proprietors. Instead, worker classification is determined by Cal. Labor Code § 2750.5 and by Borello.
  • Revises referral agency exemption criteria and clarifies that referrals for services do not include high hazard industry services and janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or construction services other than minor home repair.

The ABC test and the Borello test both assume that the worker is an employee. The hiring entity must prove that the worker is an independent contractor to make that classification. Under the ABC test, if a hiring entity cannot to demonstrate any part of the three-part test then the worker is not an independent contractor. Under the Borello test, no single factor determines whether a worker is an employee or an independent contractor. Instead, courts consider all potentially relevant factors on a case-by-case basis according to the nature of the work, the overall arrangement between the parties, and the purpose of the law. 

The law took effect September 4, 2020.