By now, any business that’s based in the US and works with freelancers should be well-acquainted with Assembly Bill 5, but are you also familiar with the updated list of AB5 exemptions?
To be precise, there are 109 categories of workers that are exempt from the ABC test according to AB5. However, most exempt workers don’t automatically get to be defined as independent contractors. Instead, they are subject to the Borello test to determine the correct status. The main difference between the two tests is that the Borello test is significantly less strict and makes it easier to be defined as a contractor.
By understanding who is subject to the AB5 ABC test and who is subject to the Borello test, businesses will be better prepared to correctly classify workers and avoid penalties.
This article is part of our guide on Assembly Bill 5 (AB5).
Why California legislators created AB5 exemptions
While crafting AB5, lawmakers were already planning to include some exemptions that acknowledged obvious scenarios in which a worker should remain independent (such as an independent physician who works at different medical practices throughout the week and is paid by each one separately).
However, as a result of intense lobbying by dozens of professional groups in the days and even hours before it was passed, AB5 passed with a handful of key exemptions.
According to the national law firm Epstein, Becker, & Green P.C., the following groups were exempt from AB5 when it was passed in September 2019: lawyers, human resources administrators, doctors, psychologists, dentists, podiatrists, insurance agents, stock brokers, accountants, engineers, veterinarians, direct sellers, real estate agents, hair stylists, barbers, aestheticians, commercial fishermen, marketing professionals, travel agents, graphic designers, grant writers, fine artists and payment processing agents.
But many impacted categories of workers were not exempt from AB5, despite their own lobbying efforts. As a result, these groups (including independent truckers, physical therapists, mancurists, exotic dancers, musicians, journalists, and gig economy workers, such as delivery drivers) expected to be reclassified as employees.
The battle for AB5 exemptions
The passage of AB5, with its limited exemptions, was met with harsh backlash.
Many groups of workers that were not exempt from AB5 strongly opposed the new law, which they argued hurt their ability to find freelance work, forced them to give up autonomy, and ultimately undermined their success.
Businesses were also against it, as it forced them to shoulder the extra costs of supplying benefits and paying payroll taxes, and held them to more rigorous standards of accountability.
Amid this backlash, workers and companies sought ways to get out of it. Here, we’ll examine two key cases.
1. Prop 22
Prop 22 was a ballot initiative that Uber, Lyft, and DoorDash authored in response to AB5, which sought to exempt ride-hailing app drivers and delivery drivers from being reclassified as employees under AB5.
The measure’s authors argued that maintaining gig workers’ status as independent contractors is both central to their business model and necessary for keeping work schedules flexible for drivers.
While app-based companies that rely on gig worker labor are exempt from classifying them as employees, the proposition does include new requirement for health insurance subsidies, disability coverage, minimum wage, and protection from discrimination.
Ironically, AB5 has no impact on the sector of the freelance economy it had most intended to target.
2. Freelance journalists and photographers challenge AB5 in court
A seemingly arbitrary clause in AB5 stipulated that a freelance writer or photographer could only produce 35 or fewer pieces of content for a single publication per year in order to remain independent.
Both groups of workers immediately opposed the clause, which they feared would lead many publications to end their work contracts—and they were right. In response to the law, Vox Media announced it would cut hundreds of California freelance writers, saying it would create 20 part- and full-time journalist positions instead.
A day after Vox’s decision, two freelancer groups filed a lawsuit in Los Angeles federal court alleging that AB5 is unconstitutional because it restricts free speech and the media. In March 2020, a LA federal judge dismissed the lawsuit, and pointed to the fact that the 35-article cap was eliminated in the amended version of AB5 (more on this below).
The freelance groups attempted to revive the lawsuit in June 2021, but they had little luck convincing the judge. According to sitting U.S. District Judge Richard Seeborg of the Northern District of California, the law aims to prevent companies from using freelancers to replace employees, and doesn’t impose restrictions on speech.
AB5 exemptions expand under AB2257, but opposition remains
During the above-mentioned battles against AB5, California state legislators enacted AB 2257 in September 2020, an amendment to AB5.
AB 2257 added more exemptions to the ABC test, clarified some of the law’s ambiguous components, and revised existing law related to exemptions for certain categories of work, including business-to-business relationships, referral agencies, professional services, and performance artists, among others.
You can find a comprehensive list of all exemptions here.
However, AB5 is still considered controversial and opposition remains. Given the young bill’s tumultuous history so far, we can likely expect more AB5 updates and exemptions in the future.