Governor Signs AB 2257 Updating AB 5 Independent Contractor Law

AB 5, which went into effect January 1, 2020, codified in the Labor Code the “ABC” test for determining independent contractor status that the California Supreme Court adopted in its 2018 decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. Our bulletin regarding the details of AB 5 can be found here.

On Friday, September 4, 2020, Governor Newsom signed Assembly Bill 2257 (AB 2257) into law. AB 2257 served as clean-up legislation to AB 5, and amends certain exceptions to the “ABC” test set forth in AB 5. AB 2257 was an urgency bill so it becomes effective immediately.

Importantly, AB 2257 clarifies that the “business service provider” exemption to the stricter ABC test covers contracting services provided to a “public agency.” Prior to AB 2257, because the statute did not specifically state “public agency,” there was some question regarding whether the legislature intended to apply AB 5 to public agencies. This specific mentioning of public agencies in the “business service provider” exemption appears to demonstrate that the legislature intended for AB 5 to apply to public agencies.

AB 2257 also made the following changes to some of the conditions for eligibility for the “business service provider” exemption:

• One criterion for eligibility for the exemption is that the business service provider provide services directly to the contracting business rather than to customers. AB 2257 adds that this restriction does not apply if the business service provider’s employees are solely performing services under the name of the business service provider and the business service provider regularly contracts with other businesses.
• AB 2257 specifies that a contract with a business service provider must include the payment amount, rate of pay, and the due date for the payment.
• AB 2257 allows for a residence to qualify as the separate business location of the business service provider.
• Previously, AB 5 required that the business service provider “actually” contract with other businesses and provide similar services. AB 2257 changed this requirement to “can” contract with other businesses.
• AB 2257 clarifies that the business service provider may use proprietary materials of the contracting agency that are necessary to perform the services of the contract.

AB 2257 also created additional exemptions for various professions and occupations. For example, it exempts individuals who provide underwriting inspections and other services for the insurance industry, a manufactured housing salesperson, people engaged by an international exchange visitor program, consulting services, animal services, competition judges, licensed landscape architects, specialized performers teaching master classes, registered professional foresters, real estate appraisers and home inspectors, and feedback aggregators.

LCW can assist your agency with questions about AB 2257 and AB 5, and its potential effects on your agency.