Dealing with California's New Contractor Laws

Dealing with California's New Contractor Laws

Hi friend! Full disclosure. This is a complete redraft of this blog post. Here’s why. I’m a big believer in comprehensive education. My inclination is to teach you the history of this law, all the different exceptions, the temperature it was the day the law was drafted, you get the picture.

But here’s the thing. You don’t want to read all that shit. Thus, I’m giving you just the info you really need to get the answers you really want.

Before we get started, let’s get really clear on some vocabulary. “Employee” is a loaded legal term. When we call someone an employee it implies that they are entitled to a slew of legal benefits. When referring to someone who is not an employee, we typically use the term “contractor.’ I’ll use the term “worker” to refer to a person doing work for someone else when I’m not distinguishing between employees and contractors.

Why We Care

Misclassification of employees as contractors is a heavily litigated and high risk area of the law, particularly in California. Employees have a lot of skin in the game because being misclassified effects their taxes, disability, social security, and other employment benefits. Many, many contractors are intentionally misclassified by employers. Courts are cracking down, and the rules are getting stricter. To stay in compliance and avoid lawsuits and penalties, it’s important to stay on top of the law. Many creatives are in an odd position because the laws are coming down on large businesses who intentionally misclassify workers, and those laws are over-broad, sweeping thousands of small business owners into the new framework.

It All Starts with Dynamex

Back in April of 2018, the Supreme Court of California in a case called Dynamex. The result was 80 pages of  fun that completely reshaped the state’s employment laws. Specifically, restructured the framework we use to determine whether a worker  is an independent contractor or employee.

That framework is called the ABC test. Under the ABC test, a worker must meet each of the following to be deemed an independent contractor: 

  1. The worker must be “free from the control and direction of the hirer.”
  2. The worker must “perform work that is outside the usual course of the hiring entity’s business”; and
  3. The worker must “customarily be engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”

I’ll break down these points in a moment. First, we need to hammer home one very important point. The ABC test is what us hip and cool lawyers call a burden shifting test.

Under the old law, a worker was assumed to be a contractor. This means that if the worker wished to sue claiming they were actually an employee, it’d be their responsibility to prove that they were in fact an employee.

Now, the assumption is the opposite.

If there’s a dispute as to the worker’s status, it’s the hiring entity’s responsibility to prove that person is a contractor. In other words, that worker is initially presumed to be an employee. It’s the hiring business’s responsibility to prove the worker either meets the ABC test requirements or one of many exceptions.

If you’re thinking “ohh-shit,” that is the correct response.

This why we now must really get our shit together.

Now, that I have sufficiently scared you, let’s dig in a bit more to the A, B, and C’s.

The "ABC Test"

Parts A & C are relatively straightforward, so let’s start there.

Part A

This part looks to the right of control and is similar to the analysis that would have taken place under the old law. I have a separate blog on that law. Dive into that one after you finish this one.

Part C

This part is most easily explained by example. If I, an attorney, contract with someone to take my brand photos, that contractor must be in business as a photographer. The same goes for one photographer who contracts with another photographer to second-shoot an event. The contractor must be “customarily engaged” in the photography business. 

Here’s an example of where Part C becomes a problem. Wednesday is a wedding planner. Their cousin April is in high school and wants a part time job. April doesn’t have a business. April isn’t trying to have a business. If Wednesday hires April to be a day-of-assistant, that would be a violation of Part C.

Part B

Part B is the stickiest issue. What it essentially means is that you can’t hire someone as a contractor if they do the same type of work as you. For example, a photographer couldn’t hire another photographer as a contractor, a graphic design couldn’t hire another designer to assist them as a contractor, you get the picture. 

I could provide examples from case law demonstrating the nuances of “work that is outside the usual course of the hiring entity’s business,” but that’s a pain in ass the for both of us.

Instead, let’s shift focus to the exceptions to the ABC test.

AB5 & The "Cleanup Bill" (AB 2257)

On September 18, 2019, the Governor of California signed into law Assembly Bill 5 (AB5). The law went into effect on January 1, 2020. AB5 codified the ABC test. Translation, it expanded the test to all areas of employment law and made the ABC test a big deal, officially. While the new law was largely a shit storm, it did provide many exceptions for various industries and professionals. But not really enough. It was still a hot mess. So much so, that I got into a bit of a twitter spat with the author of the bill. (I have the receipts. See the screenshots below.  😬😎😬).

A few months later, the state passed a cleanup law, which added a collection of new exceptions.  I’ll spare you the legislative history and an entire analysis of the various exceptions. Instead, I’ll explain the exceptions.

If I don’t have a section for your industry, don’t totally lose hope. Check the general business-to-business exception at the end. Also, please note that this blog is not totally comprehensive. I’m leaving out several industries/exceptions for brevity, specifically those I doubt will stumble upon this blog post.

Quick Update on This Twitter Saga 

Assemblywoman Gonzalez actually did DM me her email. I drafted a 5 page letter with my thoughts on how AB5 could be best adapted for the event industry. Before emailing it, I got feedback from members of my Facebook Group.

I never did get an email response to the letter, but - good news - the issue I provided with the makeup artist has now been fixed with the event exception discussed below.

Who doesn't love a good visual? Download my Framework for a checklist you can follow to better analyze your contractor situation.

Event Professionals

I prayed to RuPaul for comprehensive carve out for event professionals. And the state came through with its "cleanup bill," AB 2257. Event professionals now have an exception to AB5 if the purpose of the agreement is between two businesses for a “single-engagement event.”

The law defines a single-engagement event as a stand-alone non-recurring event in a single location, or a series of events in the same location for no more than once a week.

But, event pros, must meet 8 additional requirements to meet this exception.

(1) Neither individual is subject to control and direction by the other, in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(2) Each individual has the ability to negotiate their rate of pay with the other individual.

(3) The written contract between both individuals specifies the total payment for services provided by both individuals at the single-engagement event, and the specific rate paid to each individual.

(4) Each individual maintains their own business location, which may include the individual’s personal residence.

(5) Each individual provides their own tools, vehicles, and equipment to perform the services under the contract.

(6) If the work is performed in a jurisdiction that requires an individual to have a business license or business tax registration, then each individual has the required business license or business tax registration.

(7) Each individual is customarily engaged in the same or similar type of work performed under the contract or each individual separately holds themselves out to other potential customers as available to perform the same type of work.

(8) Each individual can contract with other businesses to provide the same or similar services and maintain their own clientele without restrictions.

So, if for example, a photographer hires a second-shooter and can demonstrate that relationship meets each of these requirements, the determination of whether the second shooter is an employee or a contractor will be determined by the old test. In reality, if you do satisfy these requirements, you should satisfy the old test as well.

The Big Takeaways for Event Professionals

If you want someone to be a contractor, they need to have an established business. Be careful who you work with, particularly if they provide your same core service. Also, make sure to have a written contract for each and every event and contractor.

Lastly, I recommend having a solid onboarding process where you collect the necessary information up front. For details on how that could work, checkout my Contractor Compliance Framework (you can signup below 🥳). 

"Professional Services"

There’s a whole group of service providers that fall into their own category of exceptions. AB5 refers to these as professional services. I hate the name. It's confusing. But we gotta role with it.

First you must determine if you qualify as a provisional service provider. I expand on that under each industry. Some, like graphic designers have no details on who really qualifies as a graphic designer. Other professions have a list of qualifications. If you meet those qualifications, you must then meet 6 additional requirements as outlined below.

Photo & Video Professionals

First, note that many photo and video people will qualify for the event pro exception. If hiring someone on a more ongoing basis, then you’ll look at this exception.

Still photographers, photojournalists, videographers, and photo editors are exempt from the AB5 test so long as:

  • The contractor works under a written contract that specifies the rate of pay and obligation to pay by a defined time, as long as the individual providing the services is not directly replacing an employee who performed the same work at the same volume for the hiring entity;
  • The individual does not primarily perform the work at the hiring entity’s business location, notwithstanding paragraph (1) of subdivision (a); and the individual is not restricted from working for more than one hiring entity. 

(This does not apply to those who work on motion picture - don’t ask me why).

In addition, if you meet these requirements, you must also meet 6 requirements for professional services provides. Please check out these requirement below.

Marketing Professionals

Marketing professionals are exempt from the ABC test provided that the contracted work is “original and creative in character and the result of which depends primarily on the invention, imagination, or talent of the individual or work that is an essential part of or necessarily incident to any of the contracted work.” 

f you meet these requirements, you must also meet 6 requirements for professional services provides. Please check out these requirement below.

Fine Artists

Fine artists are exempt from the ABC test if they meet the 6 requirement (listed below). The law defines fine artists as “an individual who creates works of art to be appreciated primarily or solely for their imaginative, aesthetic, or intellectual content, including drawings, paintings, sculptures, mosaics, works of calligraphy, works of graphic art, crafts, or mixed media.”

Beauty Professionals

The Cleanup Bill created a carve out for “services provided by a licensed esthetician, licensed electrologist, licensed manicurist, licensed barber, or licensed cosmetologist provided that the individual:

(i) Sets their own rates, processes their own payments, and is paid directly by clients.

(ii) Sets their own hours of work and has sole discretion to decide the number of clients and which clients for whom they will provide services.

(iii) Has their own book of business and schedules their own appointments.

(iv) Maintains their own business license for the services offered to clients.

(v) If the individual is performing services at the location of the hiring entity, then the individual issues a Form 1099 to the salon or business owner from which they rent their business space.”

Translation, you basically need entirely separate businesses.


Additional Professional Services with no additional requirements

The law provides an exemption for the following services provided that they meet the 6 requirements listed below.

  • Freelance Writers (with some additional requirements)
  • Graphic Design
  • Content Contributors (with some additional requirements)
  • HR Administrators
  • Payment Processing Agents
  • Grant Writers
  • Enrolled Agents
  • Some Music and Television People (There’s a lot of additional info for these people)
  • Construction Pros
  • Trucking Pros
  • Data Aggregators


The 6 Requirements for Professional Service Providers

(1) The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity. Nothing in this paragraph prohibits an individual from choosing to perform services at the location of the hiring entity.

(2) If work is performed more than six months after the effective date of this section and the work is performed in a jurisdiction that requires the individual to have a business license or business tax registration, the individual has the required business license or business tax registration in order to provide the services under the contract, in addition to any required professional licenses or permits for the individual to practice in their profession.

(3) The individual has the ability to set or negotiate their own rates for the services performed.

(4) Outside of project completion dates and reasonable business hours, the individual has the ability to set the individual’s own hours.

(5) The individual is customarily engaged in the same type of work performed under contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work.

(6) The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.

For a full breakdown & checklist of the requirements by industry, make sure to download my free guide.


Totally Exempt People

Many licensed professionals are totally exempt from the ABC test. These are those we often think to be in “white collar” professions. The following individuals are exempt form the ABC test and do not have to meet the 6 additional requirements above.

  • Insurance people
  • Medical professionals
  • Lawyers
  • Architects
  • Engineers
  • Private investigators
  • Accountants
  • Securities brokers
  • Investment advisors
  • Direct salespersons
  • Commercial fishermen

The Business-to-Business Catchall Exception

If your industry does not fall into any of the above exceptions or carve-outs, your final hope is to meet the 12 point business-to-business exception. I’ve copied and pasted each exception directly from the law (that's the bolded portion) with a bit of my own commentary (in the unbolded portion).

(1) 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.

This really circles back to our original contractor laws. The has a checklist of factors for this that can help us analyze the issue of control. Check out the EDD Checklist.

(2) 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.

Again, this isn’t really clear. What does providing services directly to the contracting business mean? Let’s look at an example. You hire a photographer to serve as a second shooter for a wedding. You have a contract. You tell the photographer the date and applicable details. The second shooter shows up, gets the shots needed and hands over the SD card to you. You then edit all the photos and send the gallery to the client. The second shooter never really communicates directly to your client.

Did the second shooter provide services to you or to your client? I would argue in this example that they're providing a service to you by operating as a second angle for photos and delivering the images to you. A state auditor, however, may disagree with us both since you are directly photographing the clients. 

Where this becomes even less clear is when contracting with an associate photographer when you are not even present at the event. In that context, it looks more like the photographer is providing services directly to the client.

As you can see, this is more like a sliding scale. The more your contractor is in contact with your clients, the more likely they are to fail part two of this B2B exception.

(3) 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.

This is the clearest requirement. You absolutely, 100% MUST have an independent contractor agreement in writing.

(4) 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.

Make sure your contractors have their required licenses. I have two suggestions for you here. First, require a copy of their business license before signing an independent contractor agreement. Second, add a warranty clause in your contract where the contractor warrants that they have all required licenses.

(5) 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.

The contractor must, at a minimum have their own home office. Easy peasy. Luckily for us this was one of the provisions that got amended in the cleanup bill. It was super vague before.

(6) The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.

I find this requirement to a bit odd. The drafters are really just reiterating Part C of the ABC test. You may have also noticed that the first requirement in the B2B exception essentially incorporated Part A of the test. I feel like they almost could have said if you meet A & C of the ABC test but failed party B, then you can be exempted under a B2B contract if you meet the following additional 9 (rather than 11) factors, but I digress.

(7) The business service provider can contract with other businesses to provide the same or similar services and maintain a clientele without restrictions from the hiring entity.

This requirement is also pretty simple. You can't, in any way, restrict contractors from working with others. That includes your competition.

(8) The business service provider advertises and holds itself out to the public as available to provide the same or similar services.

This requirement is a little cloudy but clearer than others. Really just ask yourself whether your contractor is marketing themselves to provide the same service to others. If your hiring a VA consider whether they have a website or social media to promote those services to other potential clients.

(9) 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.

You shouldn’t provide tools or equipment to your contractors. They need to be their own business and supply their own stuff. I have been asked several times something like “What if my second shooter needs to use one of my lenses during a wedding.” Ok, that may be fine, but you should have a whole set of gear on hand for your contractors.

(10) The business service provider can negotiate its own rates.

What does “negotiate their own rates” mean? Seems obvious, but I have found that this contradicts the way many creatives operate. Photographers and wedding planner often say, I pay X$ for day of help. That’s now a no-no.

My tip, allow your contractors to give the first offer for their rate. From there, you can absolutely negotiate, but try to ensure that your doing a relatively good job at compensating contractors according to their skill and experience. If you “negotiate” via email but end up paying all contractors the same amount, it ends up looking like a farce.

(11) Consistent with the nature of the work, the business service provider can set its own hours and location of work.

To me, the key here is “consistent with the nature of work.” If you’re hiring contractors for an event based contract, there is going to be a predetermined location and time. I’d assume and hope that’s A-ok. Contrast that with a web designer. Assume you run a marketing agency and outsource some web design work. It’s probably ok to say “We need this project completed by June 1st.” What you can’t do is require them to work at certain times or on certain days.

(12) The business service provider is not performing the type of work for which a license from the Contractors’ State License Board is required, pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.

Most of us are not contractors in the construction sense of the term, so let's disregard this one.




Download the Contractor Framework for a checklist.

What if you don't meet any of these tests?

If you don't meet the ABC test, don't fall into one of the exemption categories, meet the professional services exception, or the B2B exception, then your workers will need to be hired as employees. I would definitely consult with an employment attorney stat for some advice. Meanwhile, if you have any followup questions on this post, drop them in our totally free Facebook Group (link below).


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