Effective September 4, 2020, Assembly Bill (AB) 2257– through Labor Code section 2776 – modifies and expands exemptions for bona fide business-to-business contracting relationships from the severe ABC independent contractor test. The more-forgiving Borello multi-factor balancing test will continue determine contractor vs. employee status for such associations.

A business entity providing services (the “service provider”) to another business entity (the “contracting business”) can fall within AB 2257’s modified business-to-business exception if each enterprise is a sole proprietorship, corporation, partnership, limited liability company or limited liability partnership.

To qualify for the exemption, AB 2257 also provides:

• Under the previous AB 5 standard, the service provider had to provide services directly to the contracting business rather than to its customers. AB 2257 now permits the service provider’s employees to deliver such contracted services directly to the contracting business’ customers so long as they do so under the service provider’s name and the service provider regularly contracts with other businesses. For example, if properly structured, a custom blinds company can now maintain its independence if hired by an interior designer to install window treatments for the designer’s clients.
• The service provider’s written contract must now specify the payment amount, rate of pay and due date.
• The service provider must still maintain its own separate business location, which may now include a personal residence.
• Prior law required a service provider company to be concurrently engaged in multiple contracts with other businesses in order to maintain the business-to-business exception to AB 5. The new law merely states the service provider must be allowed to contract with other businesses without restrictions. Thus, a service provider working exclusively on a large job for a single contracting business does not have to literally perform work for other businesses simultaneously to qualify for the exemption.
• Prior law required the service provider to provide its own tools, vehicles and equipment. The new law is not so strict, recognizing that a service provider may use some of the contracting business’s resources without losing its independence. For example, an IT service provider might well have access to and utilize the contracting company’s office equipment and proprietary software to troubleshoot and resolve a computing problem.

The service provider must also:

• be free from the contracting business’s control and direction both under the contract and in fact;
• be customarily engaged in an independently established business of the same nature as the work performed;
• advertise and hold itself out to the public as available to provide the same or similar services;
• negotiate its own rates and set its own hours and location of work;
• obtain any required business license and/or tax registration; and
• refrain from performing construction-type work that requires a license from the Contractor State Licensing Board. (Independent contractor exemption from the ABC test in the construction trades is subject to another set of rules; to be covered in a future article.)

New “On-Site” Services Exception: AB-2257 also creates a new “on-site services exception” to the ABC test when two businesses contract to provide services at “single-engagement events,” i.e., a stand-alone non-recurring event in a single location or a series of events in the same location no more than once a week. Properly structured, this would permit a caterer or stand-up entertainer to maintain independence from an event producer while serving or performing for guests. See, Labor Code section 2279.

This on-site exception applies for any type of single-engagement services except those provided in certain industries deemed “high-hazard” or at high risk of independent contractor misclassification including, for example, specific agricultural, construction, delivery, transportation/trucking and manufacturing pursuits as well as some healthcare and social assistance businesses such as in-home care and psychiatric hospitals.

To meet this on-site, single-engagement exception, the parties must be at arms-length, thus free from the other’s direction and control, able to negotiate pay rates, operating from separate business locations, providing their own tools, obtaining any required business license and/or tax registration, customarily engaging in the same or similar type of work or holding themselves out to potential customers as available to do so, and being permitted to contract with other businesses for similar services and maintaining their own clientele without restrictions.

AB 2257’s modifications, additions and clarifications should make it easier for many more businesses to legitimately contract with other businesses while avoiding the rigid ABC test. Any such arrangement should of course be carefully stated in writing as well as performed consistent with these new criteria.

See also,

• Gagging the Gigs - California Remodels Exceptions to Its Strict Independent Contractor Test (September 11, 2020)
• Back From the Brink – For Now- Uber and Lyft’s Last-Minute Reprieve From Order to Convert Drivers to Employees (August 27, 2020)
• Making Dynamex Retroactive – Federal Appeals Court Rules New Independent Contractor ABC Test Applies Before It Existed (May 31, 2019)
• Independent Contractor or Employee? – California Legislature Dealing with Competing Proposals to Kill or Expand New Dynamex Test (April 19, 2019)
• Independent Contractor Status? It Depends – Radically New Dynamex Test Only Applies to Certain Employee Classification Cases (November 9, 2018)

For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth
September 17, 2020

California’s statutory “ABC test” for classifying workers as independent contractors (I/Cs) – enacted in 2019 -- is among the most restrictive in the nation:

(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; and
(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.

Point B is the kicker. No matter a worker’s lack of supervision or his/her clearly separate pursuit of a trade or business, that person is the hiring business’s employee if performing any of the central functions of that enterprise.

As this “innovation” in the law threatened to wreak havoc in numerous industries and professions classifying independents by the traditional balancing of control factors, the legislature has tempered the test with numerous exceptions, e.g., the building trades and law practice. See articles referenced below.

Any worker falling within an ABC test exception must yet satisfy the extensive, long- standing state and federal criteria to establish his or her independence, including the IRS factors and numerous rulings.

Now add to those standards the federal Department of Labor’s (DOL) Final Rule, effective March 11, 2024, for I/C classification under the Fair Labor Standards Act.

The DOL’s Fact Sheet 13 sets out the Final Rule’s six primary, equally weighted factors to determine whether a worker is economically dependent on the hiring entity (employer):

1. The worker’s opportunity to profit or lose from the relationship based on the worker’s managerial skill, including:
   • Ability to negotiate payment for work;
   • Marketing and other efforts by the worker to expand the worker’s business;
   • Worker choice on whether to accept jobs and when to do them;
   • Worker decision-making on hiring, renting space, and obtaining equipment and materials;

1. Relative investment by the hiring entity and the worker, including the latter’s purchase of tools and other investments to support the growth of his/her own business;

1. The relative permanence of the work relationship -- sporadic work, specific projects, and a worker’s non-exclusive relations with the hirer support I/C status;

1. The nature and degree of control exercised by the hiring entity over the worker -- imposing hours and supervising worker performance look like employment;

1. Whether and to what extent the worker’s duties and labor are an integral part of the hiring business. The greater centrality, the more likely it’s employment. Someone painting a paint store’s walls is less like an employee than the person hired to sell the paint; and

1. A worker’s a high level of skill and initiative to perform the work can support I/C status.

Take-Aways:

Correct classification of independent contractors is always a case-by-case inquiry through a morass of state and federal criteria, best navigated with the aid of a skilled management-side employment attorney.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• Employee or Independent Contractor? Employers Who Misclassify Workers Put Themselves at Risk (September 16, 2022)
• California’s Newest Independent Contractor Law Part 5 – New “Music and Entertainer” Exemption from the Strict “ABC” Test (October 29, 2020)
• California’s Newest Independent Contractor Law Part 4- Amateur Umpires and Referees Among Expanded “Specified Occupations” Exceptions to Strict Test (October 22, 2020)
• California’s Newest Independent Contractor Law Part 3 – “Fine Artists” and Other Clarified and Expanded Professional Services Exemptions (October 10, 2020)
• California’s Newest Independent Contractor Law Part 2 – Revised Referral Agency Exception (September 24, 2020)
• California’s Newest Independent Contractor Law Part I – Revamped Business-To-Business Exceptions (September 17, 2020)

Helena Kobrin
Tim Bowles
April1 5, 2024

Beginning with the California Supreme Court’s Dynamex Operations West, Inc. v. Superior Court decision (April, 2018) and continuing with the passage of AB 5, effective January 1, 2020, state policymakers have sought to limit the definition of “independent contractors” under a severe ABC test.

The trend has been aimed particularly at curtailing the independent contractor model exemplified by gig economy giants such as Uber and Lyft. See, Game Changer - Independent Contractor Status in California Now Falls Under Radically Different Rules (June 1, 2018); California’s Independent Contractors, An Endangered Species by Newly Enacted AB5 (October 4, 2019).

Widespread dissatisfaction over AB 5’s limited exemptions has led Sacramento to replace that law with AB 2257, effective September 4, 2020. The new standards – found in Labor Code sections 2775-2783 – uphold the ABC test while restating and broadening the exceptions, including:

• Wider business-to-business exceptions including one for sole proprietor services “at the location of a single-engagement event”;
• An expanded referral agency exception in all service industries except high hazard and “janitorial, delivery, courier, transportation, trucking, agricultural labor, retail, logging, in-home care, or construction services other than minor home repair”;
• Exceptions for professional services, including marketing; human resources; travel agency; graphic design; grant writing; fine artists; enrolled agents (certain tax consulting); payment processing; still photography; photojournalism, videography, photo editing, and digital content aggregators servicing such persons; licensed esthetician, cosmetologist, electrologist, barber, and manicurist services; specialized performer teaching master classes; appraiser; registered forester; real estate licensee; home inspector; and repossession agency;
• Several creative activities, including creation of sound recordings and musical compositions; film and television unit production crews; individual musicians performing original creations; and individual performance artists;
• Certain contractor – subcontractor relations in the building trades;
• Data aggregators (e.g. online customer and website use info); and
• Doctors, lawyers, dentists, psychologists, veterinarians, lawyers, architects, landscape architects, engineers, private investigators, accountants, and certain insurance industry professionals.

Such excepted businesses and individuals must still meet the multi-factor balancing test for independence specified in the California Supreme Court’s 1989 Borello Sons Inc. v. Dept. of Industrial Relations decision. See Dodging the Bullet - The Industries and Professions Not Subject to California’s New Independent Contractor Restrictions (October 2019).

We will address particular features of the new law in upcoming articles.

See also:

• Making Dynamex Retroactive - Federal Appeals Court Rules New Independent Contractor ABC Test Applies Before It Existed (May 31, 2019)
• Independent Contractor or Employee? - California Legislature Dealing with Competing Proposals to Kill or Expand New Dynamex Test (April 19, 2019)
• Independent Contractor Status? It Depends - Radically New Dynamex Test Only Applies to Certain Employee Classification Cases (November 9, 2018)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin
September 11, 2020

California’s Division of Occupational Safety and Health, better known as Cal/OSHA has gone from bark – its July 16 notice calling on all employers to carefully review and follow the state's COVID-19 workplace safety and health guidance– to bite.

In two press releases, September 4 and September 9, the agency has identified 13 employers up and down the state, including manufacturers, retailers and a health care provider, that it has recently cited for a collective $500,000-plus in penalties for failing to provide adequate worker pandemic protection. The largest alleged offenders include a Vernon frozen food plant and its temporary employment agency, each tapped for over $200,000.

Cal/OSHA claims to have found hundreds of that plant’s employees “exposed to serious illness from COVID-19” due to the lack of physical distancing procedures among workers including where they clock in and out of their shifts, at the cart where they put on gloves and coats, in the break room, on the conveyor line and during packing operations.

The agency also charges the plant put workers at risk of exposure by failing to train employees to investigate any of the more than 20 COVID-19 illnesses and one related death Cal/OSHA claims to have uncovered.

Cal/OSHA clearly aims by these broad announcements to motivate greater compliance with its multi-industry guidelines and use of its multiple language educational materials as means to hasten full defeat of the virus.

“It is critical that employers evaluate the workplace and take proactive measures to prevent the transmission of COVID-19 in the workplace,” said Cal/OSHA Chief Doug Parker. “If a COVID-19 illness occurs, employers must investigate the case to determine if additional protective measures should be taken and report the serious illnesses and deaths to Cal/OSHA. Employers should also notify workers of possible exposure and report outbreaks to county public health officials.”

While sounding the alarm on alleged violators, the agency provides live, online training for employers in the agricultural, meatpacking and food processing sectors as well as direct liaison with managers and workers alike through its Consultation Services Branch, (800) 963-9424.

It should of course not take government enforcement actions to encourage any employer to adopt sound pandemic-related workplace protocols as part of its state-mandated “Injury and Illness Prevention Plan” (IIPP). We are assisting management regularly in the process.

See also,

• California COVID Plan B - “Blueprint for a Safer Economy” for a Tiered Return to the Workplace (September 4, 2020)
• Workplace Pandemic Prevention - Model Employee Handbook and Forms Include Vital COVID-19 Protocols (September 3, 2020)
• Over the Horizon - Broader “Worker-Friendlier” COVID Leave Criteria? (August 21, 2020)

For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Tim Bowles
September 10, 2020

A month into California’s first attempt at loosening commercial restrictions (the “Pandemic Resilience Roadmap”), a July 13, 2020 public health order required all counties to again close indoor operations for dine-in restaurants, movie theaters, and like establishments. See, One Big Scrappy Family, California’s Coronavirus Response Statewide and Local (August 7, 2020).

Based on greater experience, Sacramento is now embarked on its second major round of statewide business pandemic recovery guidelines, California’s Plan for Reducing COVID-19 and Adjusting Permitted Sector Activities to Keep Californians Healthy and Safe, or the “Blueprint for a Safer Economy” for short.

The Blueprint, effective August 31, refines the California Department of Public Health’s (CDPH) four pandemic stages (ranging from maximum shutdown to full cancelation of the state’s “stay-at-home” order) to four tiers of risk transmission, with a county-by-county assessment conducted weekly:

• Tier 1; Widespread risk (purple);
  
• Tier 2; Substantial (red);
  
• Tier 3; Moderate (orange); and
  
• Tier 4; Minimal (yellow)

Tier 4 is not colored green because some restrictions remain at that level.

An accompanying chart outlines the degree of restriction for each business type at each tier. For instance, companies that fall within the so-called “critical infrastructure” (medical, grocery, transport, etc.) remain open with modifications no matter what “tier” a county is in. Places of worship, movie theaters, and restaurants must comply with identical indoor and capacity restrictions, lessening to maximum 50% capacity in Tier 4. Professional sports must proceed without live audiences no matter the tier.

Assessment is week-to-week, measured by a county’s case rate, percentage of positive tests and many other metrics (statistics). The CDPH is posting each county’s current status at the beginning of each week. Reflecting a greater caution than California’s June reopening initiative, a county will remain in a tier for at least three weeks before it may advance to the next and may only move one tier at a time.

City and other local health jurisdictions may continue to maintain more restrictive health measures in their discretion.

See also:

• Over the Horizon - Broader “Worker-Friendlier” COVID Leave Criteria? (August 21, 2020)
• Workplace Discrimination in a Pandemic - California’s Updated COVID-19 FAQs Call for Careful Decision Making (August 5, 2020)
• Fourth and Long - California’s Employer Playbook For a Safe Reopening (July 31, 2020)

Tim Bowles
September 4, 2020

As a San Francisco judge had directed that Uber and Lyft convert their drivers to employees by August 21, 2020, the rideshare giants were ready to shut down their California operations unless the Court of Appeal put that order on hold. See, Traffic Slamming – New Fronts on California’s War Against Uber and Lyft (August 13, 2020).

However, on August 20, the California appeals court did just that, conditionally suspending the injunction for the length of Uber/Lyft’s appeal as long as the companies agreed to accelerate that appeal (both have) and, by September 4, confirm they will switch their California drivers to employees:

• if they lose that appeal; and
• if the voters reject Proposition 22 on the November 3, 2020 ballot

Proposition 22 proposes extensive amendments to California’s “AB 5” laws to permit a wider scope of independence – along with protections and benefits – for gig economy workers.

Next in this drama will be Uber’s and Lyft’s September 4 sworn commitments to comply with the preliminary injunction if left with no further relief from the trial court’s required conversion of drivers to employees. As they were apparently willing to do last week, the companies might instead announce their determination to shut down all California operations as that last resort instead of converting.

To minimize state or worker challenge to their hiring practices, smart California businesses contemplating or continuing independent contractor classification should consult a management-side employment attorney to advise on how the law – and the current uncertainties surrounding Uber and Lyft drivers – affect their plans.

See also:

• Is Gig Up for Car Wash Company? – First AB 5 Suit Challenging Independent Contractor Classification (July 30, 2020)
• Calling Out Big Gig – California Wants Uber and Lyft Drivers as Employees (May 22, 2020)
• Roadkill – Federal Court Denies Uber Request to Stop AB5 (February 21, 2020)
• The Mystery of it All – Employed or Independent? California Offers AB5 Answers (February 7, 2020)
• Dodging the Bullet – The Industries and Professions Not Subject to California’s New Independent Contractor Restrictions (October 9, 2019)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin
August 27, 2020

The Families First Coronavirus Response Act (FFCRA), effective April 1 to December 31, 2020, requires most businesses with fewer than 500 employees to provide:

• two weeks emergency paid sick leave benefits for employees who cannot work or telework for any one of six COVID-19 related reasons; and
• up to 12 weeks of partially paid family leave to care for one’s child due to COVID-19-related school or other “place of care” closures. See, Federal Coronavirus Workplace Relief (March 23, 2020)

Employers have since relied on the U.S. Department of Labor’s (DOL) rules and frequently-asked-questions to apply these benefits narrowly. However, a recent New York court ruling more favorable to employees may be the precursor for invalidating some of these regulations nationwide. Among that federal district court judge’s directives:

• No-work-available rule shot down. Contrary to the DOL rules, the federal court judge found employers cannot deny FFCRA benefits to otherwise eligible workers on the grounds that they would be “furloughed” (temporarily laid off ) due to slowed or closed operations in any event.
• Narrow definition of health care provider vacated. The FFCRA permits “health care providers” to deny FFCRA leave to their employees. The federal court rejected the DOL’s inclusion of entities and individuals only indirectly involved in health care delivery (e.g., hospital equipment suppliers; a hospital’s janitorial staff). Thus, only actual health care providers -- doctor offices, hospitals, health care centers, etc. – can deny such benefits and only to those who actually deliver such services – doctors, nurses, medical assistants, etc.
• No employer consent required for intermittent leave. The judge also invalidated the DOL rule that required remote workers to obtain employer consent to take FFCRA leave intermittently.
• Documentation requirement must be consistent with FFCRA’s language. The court further cut out the DOL rule requiring employees to submit satisfactory documentation of their eligibility in advance of taking FFCRA leave. Rather, a worker may give notice of his/her leave qualification after receiving the first paid workday (or portion thereof) or, for foreseeable emergency paid family leave, “as is practicable.”

Takeaways and Best Practices:

While a holding currently restricted to a single New York federal court, much wider application is possible, for example, by the results of any DOL appeal or by the agency’s agreement to relax such rules nationwide.

Meanwhile, employers should consider implementing practices and procedures consistent with this court’s ruling and obtaining advice of competent legal counsel when fielding FFCRA leave requests.

See also,

• Paid Sick Leave Going Viral – California Cities and Counties Expanding Pandemic-Related Benefits (May 29, 2020)
• COVID-19, I Presume – Workers Compensation Coverage for Diagnosed Workers (May 20, 2020)
• It’s a Wash – COVID 19 Paid Leave and Tax Credits (April 9, 2020)
• COVID-19 Gets Noticed (April 1, 2020)

For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth
August 21, 2020

As California supplies no specific definition for required personnel records, it falls to company management to judge what constitutes adequate documentation that reliably reflects each employee’s work history with the company.

Labor Code section 1198.5 addresses employees’ rights to access their “personnel records” without defining the term. The Labor Commissioner refers to “personnel files” and “personnel records” interchangeably but only names categories of papers generally considered to fall within these terms: “those that are used or have been used to determine an employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination.” The Commissioner also offers “some examples,” including employment application; performance evaluations; promotion, pay rate, discipline, and termination notices; and attendance records.

Employers should not limit their recordkeeping practices to this handful of suggestions from the state. A wider range of items to be kept in each employee’s main personnel file might include:

• Job application and resume
• Background and reference checks
• Job description
• Job-related testing results
• Orientation checklist
• Emergency contact
• Signed receipts of company handbook and other company policy
• Attendance and absence records
• Education and training records
• Payroll authorization or modification paperwork
• Employment agreement and/or non-disclosure agreement
• Arbitration agreement
• Disciplinary records
• Performance evaluations and commendations
• Termination records

Worker privacy requires several other worker-related items to each be maintained separately, including:

• Medical records, including family medical leave documentation, doctor’s notes, workers’ compensation claims, and any other health-related information
• Private financial records
• For those enterprises who must periodically submit EEO-1 reports (generally, employers with 100-plus on payroll), supporting equal employment opportunity records including workers’ racial or ethnic identities
• Investigative files or litigation documents, such as those pertaining to harassment, discrimination, retaliation and whistleblower claims

Retain all personnel records, confidential and otherwise, for at least four years after the employment relationship ceases. Documents requiring even longer retention periods include:

• pension and welfare plan information (five years)
• first-aid records of certain job injuries causing loss of work time (five years), and safety and toxic or chemical exposure records including safety data sheets (30 years)

Employers should periodically review and update company policy and procedures that establish: (i) who will maintain the company’s personnel records; (ii) how and where to store all such records; and (iii) how to protect the records from unauthorized access, removal or destruction.

Note: By contrast, federal and state laws are explicit on required payroll-related records. See, U.S. Department of Labor Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA); California Division of Labor Standards Enforcement (DLSE) Enforcement Policies and Interpretations Manual, August, 2019, section 4 “Time Record Requirements”; and Employment Development Department (EDD) 2020 California Employer’s Guide, p. 78, “Recordkeeping.”

For more information, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Tim Bowles
Cindy Bamforth
August 14, 2020

Uber and Lyft have successfully battled suits seeking to prevent the companies from classifying their drivers as independent contractors, until now.

On August 10 – in a misclassification action pending in San Francisco – the court issued a preliminary injunction requiring Uber and Lyft to convert their independent contractors to employees until final decision at trial. However, the judge put order on hold for 10 days to permit the companies to appeal the order to the Court of Appeal.

Another attack line opened this month, a Labor Commissioner complaint filed in Oakland claiming Uber and Lyft are engaging in “wage theft” by characterizing an estimated 100,000 drivers each as independent. The suit seeks recovery for minimum wage, overtime, rest breaks, paid sick leave, expenses, and mileage, as well as penalties, interest, and attorney fees.

Meanwhile, these rideshare giants have qualified Proposition 22 for the November 3 ballot, seeking voter override of the state’s efforts to end their independent contractor business model.

On the PR front, Uber’s CEO August 10 op-ed in The New York Times (“Gig Workers Deserve Better”) challenged the current “either/or” divide with a middle “third way” permitting the flexibility a majority of gig drivers want along with employment benefits not currently received.

Regardless of how all this settles out, seeking expert advice from a management-side employment attorney is crucial for a business contemplating hiring workers – or continuing to classify them – as independent contractors.

See also:

• Is Gig Up for Car Wash Company? – First AB 5 Suit Challenging Independent Contractor Classification (July 30, 2020)
• Calling Out Big Gig – California Wants Uber and Lyft Drivers as Employees (May 22, 2020)
• Roadkill – Federal Court Denies Uber Request to Stop AB5 (February 21, 2020)
• The Mystery of it All – Employed or Independent? California Offers AB5 Answers (February 7, 2020)
• Dodging the Bullet – The Industries and Professions Not Subject to California’s New Independent Contractor Restrictions (October 9, 2019)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin
August 13, 2020