New Independent Contractor Laws in California … Again?
On January 1, 2020, California’s AB5 went into effect, making sweeping changes in how workers are classified. What resulted was a growing number of questions from employers concerning the use of independent contractors. On September 4, 2020, the Governor signed AB2257 with immediate effect in an attempt to “clean up” AB5.
While AB2257 leaves many questions unanswered, it does expand on the exemptions to the law (bringing the total exemptions to over 100). Of importance, AB2257, among other changes/requirements, eases the “business-to-business” exception by:
- allowing the business service provider (i.e., the contractor) to use their residence as the required separate business location;
- changing the requirement under AB5 that a business service provider “actually” contract with other businesses to provide the same or similar services to “can” contract with other businesses; and
- qualifying the prohibition of a business service provider from providing services directly to the contracting business’s customers.
With the ever-changing landscape of worker classifications in California (note the recent passage of Proposition 22 exempting app-based rideshare and delivery drivers (e.g., Uber, Lyft, and Postmates) from AB2257), financial institutions should review any workers classified as independent contractors under the new law. The success of Proposition 22 will likely lead to other large companies and groups pursuing similar efforts to exempt more occupations/areas of work from California’s onerous worker classification law. We will continue to monitor for any developments.