AB 5 Update: AB 2257 Would Amend California Independent Contractor Law

AB 2257 IN “LEGISLATIVE FORMAT” August 26, 2020 New Labor Code Section 2775 [The ABC Test, compare to current LC § 2750.3(a)] (a) As used in this article: (1) “Dynamex” means Dynamex Operations W. Inc. v. Superior Court (2018) 4 Cal.5th 903. (2) “Borello” means the California Supreme Court’s decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341. (b) (1) For purposes of the provisions of this code and the Unemployment Insurance Code, and for the purposes of wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied: (A) The person 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. (B) The person performs work that is outside the usual course of the hiring entity’s business. (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. (2) Notwithstanding paragraph (1), any exceptions to the terms “employee,” “employer,” “employ,” or “independent contractor,” and any extensions of employer status or liability, that are expressly made by a provision of this code, the Unemployment Insurance Code, or in an applicable order of the Industrial Welfare Commission, including, but not limited to, the definition of “employee” in subdivision 2(E) of Wage Order No. 2, shall remain in effect for the purposes set forth therein. (3) If a court of law rules that the three-part test in paragraph (1) cannot be applied to a particular context based on grounds other than an express exception to employment status as provided under paragraph (2), then the determination of employee or independent contractor status in that context shall instead be governed by the California Supreme Court’s decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello). New Labor Code Section 2776 [Business-to-Business, compare to current LC § 2750.3(e)] (e) Subdivision (a)Section 2775 and the holding in Dynamex do not apply to a bona fide business-to-business contracting relationship, as defined below, under the following conditions: (1a) If an individual acting as a sole proprietor, or a business entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation (“business service provider”) contracts to provide services to another such business or to a public agency or quasi-public corporation (“contracting business”), the determination of employee or independent contractor status of the business services provider shall be governed by Borello, if the contracting business demonstrates that all of the following criteria are satisfied: (A1) The business service provider is free from the control and direction of the contracting business entity in connection with the performance of the work, both under the contract for the performance of the work and in fact. (B2) The business service provider is providing services directly to the contracting business rather than to customers of the contracting business. This subparagraph does not apply if the business service provider’s employees are solely performing the services under the contract under the name of the business service provider and the business service provider regularly contracts with other businesses. (C3) The contract with the business service provider is in writing and specifies the payment amount, including any applicable rate of pay, for services to be performed, as well as the due date of payment for such services. (D4) If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration. (E5) The business service provider maintains a business location, which may include the business service provider’s residence, that is separate from the business or work location of the contracting business. (F6) The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed. (G7) The business service provider actually contractscan contract with other businesses to provide the same or similar services and maintainsmaintain a clientele without restrictions from the hiring entity. (H8) The business service provider advertises and holds itself out to the public as available to provide the same or similar services. (I) The9) Consistent with the nature of the work, the business service provider provides its own tools, vehicles, and equipment to perform the services, not including any proprietary materials that may be necessary to perform the services under the contract. (J10) The business service provider can negotiate its own rates. (K11) Consistent with the nature of the work, the business service provider can set its own hours and location of work. (L12) The business service provider is not performing the type of work for which a license from the Contractor’sContractors’ State License Board is required, pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code. (2) This b) When two bona fide businesses are contracting with one another under the conditions set forth in subdivision does not apply to an individual worker, as opposed to a business entity, who performs labor or services for a contracting business. (3) The(a), the determination of whether an individual working forworker who is not acting as a sole proprietor or formed as a business service providerentity, is an employee or independent contractor of the business service provider or contracting business is governed by paragraph (1) of subdivision (a).Section 2775. (4c) This subdivisionsection does not alter or supersede any existing rights under Section 2810.3. New Labor Code Section 2777 [Referral Agencies, compare to current LC § 2750.3(g)] (g) Subdivision (a)Section 2775 and the holding in Dynamex do not apply to the relationship between a referral agency and a service provider, as defined below, under the following conditions: (1a) If an individual acting as a sole proprietor, or a business entity formed as a sole proprietor, partnership, limited liability company, limited liability partnership, or corporation (“service provider”) provides services to clients through a referral agency, the determination of whether the service provider is an employee or independent contractor of the referral agency shall be governed by Borello, if the referral agency demonstrates that all of the following criteria are satisfied: (A1) The service provider is free from the control and direction of the referral agency in connection with the performance of the work for the client, both as a matter of contract and in fact. (B2) If the work for the client is performed in a jurisdiction that requires the service provider to have a business license or business tax registration in order to provide the services under the contract, the service provider hasshall certify to the referral agency that they have the required business license or business tax registration. The referral agency shall keep the certifications for a period of at least three years. As used in this paragraph: (C(A) “Business license” includes a license, tax certificate, fee, or equivalent payment that is required or collected by a local jurisdiction annually, or on some other fixed cycle, as a condition of providing services in the local jurisdiction. (B) “Local jurisdiction” means a city, county, or city and county, including charter cities. (3) If the work for the client requires the service provider to hold a state contractor’s license pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code, the service provider has the required contractor’s license. (D4) If there is an applicable professional licensure, permit, certification, or registration administered or recognized by the state available for the type of work being performed for the client, the service provider shall certify to the referral agency that they have the appropriate professional licensure, permit, certification, or registration. The referral agency shall keep the certifications for a period of at least three years. (5) The service provider delivers services to the client under the service provider’s name, rather thanwithout being required to deliver the services under the name of the referral agency. (E6) The service provider provides its own tools and supplies to perform the services. (F7) The service provider is customarily engaged, or was previously engaged, in an independently established business or trade of the same nature as that involved in, or related to, the work performed for the client. (G8) The referral agency does not restrict the service provider maintainsfrom maintaining a clientele without any restrictions from the referral agency and the service provider is free to seek work elsewhere, including through a competing referral agency. (H9) The service provider sets itstheir own hours and terms of work or negotiates their hours and terms of work directly with the client. (10) Without deduction by the referral agency, the service provider sets their own rates, negotiates their rates with the client through the referral agency, negotiates rates directly with the client, or is free to accept or reject rates set by the client. (11) The service provider is free to accept or reject clients and contracts. (I) The service provider sets its own rates for services performed, without deduction by the referral agency. (J) The...