AB 5 – New Freelancer Law

Employee or Freelancer? That is what AB 5 aims to answer.

In September, Governor Newsom signed the controversial Assembly Bill 5 into law. Of Interest to both individuals and companies, AB 5 affects freelancers status (with certain exceptions) throughout California.

The new law—Assembly Bill 5—codifies and expands on the California Supreme Court’s decision in the Dynamex Operations West v. Superior Court of Los Angeles (2018). In that case, the court ruled that the so-called “ABC test” will govern whether a worker is an independent contractor under the California wage orders.

The New ABC Test
The ABC test imposes a significantly higher burden on companies than the previous Borello test (see below) and will make it more difficult to establish independent contractor status. Under the ABC test, workers will be presumed to be employees unless a company can prove all three of the ABC factors:

1. That 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;
2. That the worker performs work that is outside the usual course of the hiring entity’s business; and
3. That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

Thank Goodness for Exceptions
Luckily, the bill exempts a laundry list of workers, including the following professional services. “Marketing, human resources administrator, travel agents, graphic designers, grant writers, fine artist.” These professions are allowed use the prior employment test, called Borello.

The Borello Test
The principal factor of the Borello test is whether the “person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” The test also includes additional factors:

1. The individual maintains a business location, which may include the individual’s residence that is separate from the hiring entity. Nothing in this subdivision 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, the individual has a business license, 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.

The Nuts & Bolts
AB 5 is meant to provide protections for those working in the “gig” economy (Think: Uber drivers), but what it risks is creating confusion, complication, and potentially loss of income for certain freelancers. For those in our industries in marketing and graphic design roles, its shouldn’t make much of a difference, unless that individual only contracts with one company.

In sum, if you want to continue as a freelancer, make sure to share the wealth of your talents. And for a company—printer or marketing/ad agency, if you find a resource whose talent you need more than less, you might just want to consider getting them on salary.