Calif. Governor Signs Law Exempting Freelance Journalists from 'ABC Test'

Many freelance journalists, musicians, translators and other workers in California can operate as independent contractors under a new law signed by Gov. Gavin Newsom on Sept. 4.

California's stringent '"ABC test"—which took effect on Jan. 1—makes it difficult for businesses to classify workers as independent contractors. Lawmakers aimed to provide workplace protections to more people by requiring businesses to reclassify many independent contractors as employees, who are entitled to a minimum wage, overtime pay, unemployment insurance and other benefits that are not generally provided to independent contractors.

Under the original legislation, AB 5, certain freelance journalists could still work independently if they produce no more than 35 works per year for each client. The new law, AB 2257, takes effect immediately and removes the 35-submissions limit. Now, for an exception to the ABC test to apply, businesses will have to show that freelance writers, translators, illustrators, editors, copy editors and other content contributors meet the following requirements:

• The workers provide services under a contract that specifies their rate of pay, a defined time by which they must receive their payment and their intellectual property rights to the work.
• The workers do not primarily provide services at the hiring entity's business location.
• The hiring entity does not hire the workers to provide services that would directly replace existing employees who do the same work at the same volume or prevent the workers from providing services to more than one hiring entity.

Freelancers who meet these criteria will be evaluated under the Borello test, which predates the ABC test and involves a multifactor analysis that primarily focuses on who exerts control over the work.

"AB 2257 represents a comprehensive framework for employment law that makes a clear distinction between employer-employee relationships and professionals that run their own independent businesses," said Assemblywoman Lorena Gonzalez, D-San Diego, the bill's author.

Employers should note that there are other exceptions to AB 5 for various categories of workers. "HR professionals should consult with their in-house and outside counsel to determine if any of those exceptions apply to any of their employees or service providers," suggested Jesse Jauregui, an attorney with Alston & Bird in Los Angeles.

The 'ABC' Test

Effective Jan. 1, AB 5 codified a 2018 California Supreme Court decision that created a three-pronged test, called the "ABC test," to determine whether a worker should be classified as an employee or independent contractor. All three of the following factors must be met for a worker to be properly classified as an independent contractor:

• 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 and in fact.
• The worker performs tasks that are outside of the usual course of the hiring entity's business.
• The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

Though the state high court's decision only applied to wage orders, AB 5 extended the ABC test to all provisions of the California Labor Code and Unemployment Insurance Code unless another definition of "employee" is provided. The law puts the burden on businesses to prove that independent contractors are properly classified.

The second prong of the ABC test is the significant change that employers need to understand, said Todd Scherwin, an attorney with Fisher Phillips in Los Angeles. It used to be that if a worker was doing something germane to the business, it would be difficult to show that that worker was an independent contractor, but the business could still argue that other weighted factors leaned toward an independent-contractor relationship.

It will be much more difficult for hiring entities to show as an absolute factor for every independent contractor that the work performed is outside the usual course of the business, he noted.

Gig Drivers Still Covered for Now

Gonzalez did not extended exceptions to the ABC test to gig-economy workers, and California Attorney General Xavier Becerra and other state leaders have sued Uber and Lyft seeking millions of dollars in back pay for drivers who were allegedly misclassified.

A trial court judge in San Francisco issued a preliminary injunction on Aug. 10 blocking the ride-hailing giants from continuing to classify drivers as independent contractors, but a state appeals court granted an emergency order halting the preliminary injunction just before it took effect. The appeals court will now review the trial court's order and hear oral arguments in the case on Oct. 13.

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Uber and Lyft plan to proceed with their appeal of the preliminary injunction. "While we won't have to suspend operations … we do need to continue fighting for independence plus benefits for drivers," said Lyft spokeswoman Julie Wood.

The companies will also be focused on the November election and their efforts to secure the passage of Proposition 22, which seeks to define app-based ride-hailing and delivery drivers as independent contractors, Jauregui noted.

Uber, Lyft and several grocery and food delivery services secured enough signatures to get the gig-worker classification issue on the ballot the November. Specifically, California voters will get to decide on Election Day whether drivers for app-based delivery and ride-hailing services continue to be classified as independent contractors. App-based drivers will be defined on the ballot as workers who provide delivery services on an on-demand basis or use a personal vehicle to provide prearranged transportation services for compensation through a business's online-enabled application or platform.

The ballot measure would also ensure app-based drivers receive certain benefits, including:

• Minimum net earnings of 120 percent of the state's or locality's minimum wage and 30 cents per mile.
  
• Health care subsidies.
• Occupational accident insurance.
• Accidental death insurance.

Under the measure, companies would have to develop anti-discrimination and sexual harassment policies, and drivers would be limited to working 12 hours during a 24-hour period.

"Ultimately, we believe this issue will be decided by California voters," Lyft said.