Independent Contractor Status: AB 2257 Exemptions to the ABC Test

As discussed in our prior article, there are exemptions to the ABC test and Independent Contractor (IC) status. AB 2257 represents one of those exceptions by clarifying how service providers certify proper licensure, maintain their own clientele, and set or negotiate their terms/rates with clients without deduction by a referral agency. So then… who and what roles are exempt under AB 2257? Let’s take, for example, the Arts industry, where ICs are plentiful and can include:

• Specialized performers and educators
• Marketing professionals
• Graphic designers
• Grant writers
• Fine artists
• Photographers, photojournalists, videographers, photo editors, digital content aggregators
• Musicians and musical groups

However, certain conditions for IC status should be met. For example, an IC must:

1. Possess a required business license or business tax registration and the ability to set or negotiate rates for services
2. Outside of project completion dates and reasonable business hours, have ability to set own hours
3. Customarily engaged in same type of work performed under the contract with another hiring entity or holds self out to other potential customers as available to perform same type of work

Additionally, each individual IC should:

• Maintain his/her own business location, which may include the individual’s personal residence
• Provide his/her own tools, vehicles, and equipment to perform the services under the contract
• Have any required business license or business tax registration
• Be customarily engaged in the same or similar type of work performed under the contract or separately hold him/herself out to other potential customers as available to perform the same type of work
• Contract with other businesses to provide the same or similar services and maintain his/her own clientele without restrictions.

Let’s take, for example, a musical group, where one of the following conditions must be met for IC status:

1. Musical group is performing as a symphony orchestra, performing at a theme park or amusement park, or a musician is performing in a musical theater production
2. Musical group is an event headliner for a performance taking place in a venue location with more than 1,500 attendees
3. Musical group is performing at a festival that sells more than 18,000 tickets per day

However, although only one of the above conditions must be met for the musical group to be an IC, all the following conditions must be satisfied:

• Musical group/individual is free from the control and direction of the hiring entity in connection with the performance of the work, both as a matter of contract and in fact
• Musical group/individual retains rights to their intellectual property created in connection with the performance
• Music group/individual sets own terms of work and has the ability to set or negotiate their rates
• Music group/individual is free to accept or reject each individual performance engagement without being penalized in any form by the hiring entity
• Certain occupations in connection with creating, marketing, promoting, or distributing sound recordings or musical compositions including recording artists, songwriters, lyricists, composers and proofers, as well as musicians engaged in the creation of sound recordings and vocalists

An additional exception which may have broader application is the business to business exception.  To meet that exception, employers should consider the following ten factors:

1. Business service provider (BSP) free from control and direction of contracting business entity (CBE), both under contract and in fact
2. BSP provides services directly to CBE and not its customers
3. Contract is in writing, specifies payment amount and due date, and specifies services to be performed
4. If required in the area of work, BSP has business license and tax registration
5. BSP maintains business location separate from location of CBE (may be in residence of BSP)
6. BSP customarily engaged in independently established business of same nature as work being performed
7. BSP can contract with other businesses to provide same or similar services without restrictions from CBE
8. BSP advertises and holds self out to public
9. BSP provides own tools, vehicles and equipment
10. Consistent with nature of work, BSP can set own hours and location of work

AB 2257 most certainly helps to clarify and amend AB-5. However, as indicated by the multitude of factors above, employers should carefully evaluate how the new provisions apply to their organization and business relationships. Employers should also keep in mind the IC test established in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, will continue to apply even if an exception is met. Stay tuned for the next article, a discussion of the risks inherent in AB-5 and IC status.