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AB 2257: An Overview

Ivan Hoffman, B.A., J.D.

          In an effort to remedy the defects in AB 5, the California legislature passed and the Governor signed a new bill, AB 2257.  The new statute replaces Labor Code section 2750.3, and adds and  makes changes to other statutes, and is effective immediately. 

          Editorial Note: The reader should read all the AB 5 articles on my site before reading the within article about AB 2257 since this article refers to those prior provisions contained in AB5.  Keep in mind though that AB 2257 controls and those other articles must be read in the context of AB 2257. 

Overview 

          Should you be a California-based writer or author, graphic artist, editor, journalist, musician or similar intellectual property creator (and whether you operate as a sole proprietor or as some form of entity) or should you be a publisher, record company, concert venue or other party who seeks to engage any of those parties, Assembly Bill 2257 and the statutes it amends or creates, like AB 5, presumes that the party doing the work is an employee and the burden of showing and proving that he or she is not an employee remains squarely on the shoulders of the engaging party.  But even that is not clear (see more below). 

         Keep in mind this very important point: in referring to “Borello,” all of the factors set forth by the Court in that opinion are likely part of the determination of employee or independent contractor status and thus the enumeration of conditions set forth in the statute may not be exhaustive.   The Borello Court (at 351 and 355) specifically included, as some of the considerations used in determining status: 

(g) whether or not the work is a part of the regular business of the principal;”

and (5) whether the service rendered is an integral part of the alleged employer’s business.” 

          The Court also added at 350: 

Thus, we have noted that "[s]trong evidence in support of an employment relationship is the right to discharge at will, without cause.  

          The reader should carefully note that factor (g) and the “discharge at will” factor (nor the factor below) are NOT part of the elements that the engaging party is required to prove under the statute as discussed above. 

         At the very least, if the Borello factors as enunciated by the Court vary from the factors set forth in this statute, there may be an uncertainty.  Read “AB 5: An Overview” in this regard. 

         Thus, the not-rhetorical and very practical question remains: 

Who would EVER take a chance on engaging a contributor even under the nearly-as-strict “Borello” test when, if the engaging party guesses wrong, the legal and financial consequences to the engaging party are potentially disastrous? 

          Moreover, as indicated below, in several sections of the new bill/law, the burden of proof is not even addressed and this creates even more uncertainty.  Uncertainty works against both parties since if the party who might consider engaging the contributor’s services is not clear on whether it has liability, it is likely to decide to find someone else not in California.  That said, however, nothing in AB 2257 addresses the issues about the scope of the law in terms of whether it applies to non-California writers etc. engaged by California parties or California-based writers etc. engaged by non-California parties.  This was part of the problems with AB 5 and it continues to place a chill on anyone considering engaging a writer etc. 

          Remember as well: No party is exempt from the law.  I repeat: no party is exempt from the law.  The only “exemption” is from the operation of Dynamex ABC Test but all that “exemption” provides is that the party and its status is governed by the nearly-as-onerous provisions of Borello.  HOWEVER, the foregoing being said, an unclarity is introduced into this statute as discussed below as to Section 2780. 

The Details 

          The entirety of Labor Code 2750.3 is repealed and replaced by the various statutes referred to in AB 2257. 

          Specifically, sections are added to the Labor Code, starting with section 2775.   Section 2775 retains the same and unfortunately key issue about burden of proof discussed above.  It states that anyone providing “labor or services for remuneration” is deemed to be an employee of the engaging party unless the engaging party can overcome the burden of proof by proving that the said person and the relationship satisfies the 3-pronged “ABC Test,” from Dynamex.  Read “AB 5: An Overview.”   That means that everyone is presumed to be an employee unless the engaging party proves that they are not or unless the engaging party proves that that party or that relationship falls within the Borello exceptions.  However, as indicated above and below, as to some of those Borello exceptions, the burden of proof is not clear. 

          Section 2776 of the Labor Code governs a “bona fide business to business contracting relationship” and states that the Dynamex test does not apply to that relationship and instead provides that if the following conditions are all satisfied, the relationship is governed by Borello but as before, the burden of proof to establish all these conditions falls on the engaging (“contracting”) party. 

(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.

(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.

(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.

(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.

(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.

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

(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.

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

(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.

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

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

(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.

           Section 2777 deals with relationships established through “referral agencies” but for purposes of the burden of proof, it is up to the “referral agency” (meaning the engaging party) to establish that all of the conditions set forth are proven.  This article will not go into the details of such a relationship and if you are involved in such a situation, you should consult an experienced attorney to advise you. 

           Section 2778 deals with relationships established for “professional services” and says that under those circumstances, Borello applies provided that the “hiring entity” establishes that all of the conditions set forth are proven.  Those conditions are: 

(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.

          The statute goes on to define “professional services” and even though the previously enacted limits on submissions has been removed and other changes have been made, the burden of proof issue remains as before.

          Section 2779 provides that Dynamex does not apply where the relationship is between 2 individuals or individuals operating as business entities regarding services at a “single-engagement event.”  The statute does not provide that Borello applies and thus the questions are: does Borello apply and if not, why is this relationship treated differently,  and if so, which party has the burden of proof in regard thereto?  The conditions required to be satisfied are set forth below but unlike the other sections, these are not stated to be “all”: 

(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.

          However, see below as to section 2780, which makes the above unclear. 

          Section 2780 states that Dynamex does not apply but Borello does apply to the “occupations” set forth therein.  Moreover, the parties designated in this section are not designated as “professional services” but as “occupations” although it is not clear the rationale for the distinction.  As indicated above, other sections state that the hiring party has the burden of proving that the Borello standards apply and that the party is not an employee.  Those other sections state: 

if the hiring entity demonstrates that all of the following factors are satisfied: 

          However this section does not so provide, thus leaving the issue about burden of proof unclear. 

          The section states in part: 

2780.

 (a) (1) Section 2775 and the holding in Dynamex do not apply to the following occupations in connection with creating, marketing, promoting, or distributing sound recordings or musical compositions, and instead the holding in Borello shall apply to all of the following:

(A) Recording artists, subject to the below.

(B) Songwriters, lyricists, composers, and proofers.

(C) Managers of recording artists.

(D) Record producers and directors.

(E) Musical engineers and mixers engaged in the creation of sound recordings.

(F) Musicians engaged in the creation of sound recordings, subject to the below.

(G) Vocalists, subject to the below.

(H) Photographers working on recording photo shoots, album covers, and other press and publicity purposes.

(I) Independent radio promoters.

(J) Any other individual engaged to render any creative, production, marketing, or independent music publicist services related primarily to the creation, marketing, promotion, or distribution of sound recordings or musical compositions. 

          As if that were not unclear enough, sub-section (b) (1) adds further uncertainty by stating: 

(b) (1) Section 2775 and the holding in Dynamex do not apply to a musician or musical group for the purpose of a single-engagement live performance event, and instead the determination of employee or independent contractor status shall be governed by Borello, unless one of the following conditions is met:

(A) The musical group is performing as a symphony orchestra, the musical group is performing at a theme park or amusement park, or a musician is performing in a musical theater production.

(B) The musical group is an event headliner for a performance taking place in a venue location with more than 1,500 attendees.

(C) The musical group is performing at a festival that sells more than 18,000 tickets per day.

(2) This subdivision is inclusive of rehearsals related to the single-engagement live performance event.

          So apparently if any of the above 3 conditions apply, then apparently the parties performing are governed by the Dynamex ABC Test.  But if none of the above conditions apply, then Borello apparently applies?  Is that the intent?  And which party has the burden of proving those factors? 

          And as if that were not confusing enough, what if one of these kinds of parties does business as a “business?”  Does that mean that the relationship between that party and the engaging party is instead governed by the business to business section and not this section?  Read “AB 5: The Bona Fide Business to Business Rule.” 

          The statute goes on, again without providing any guidance about burden of proof: 

(c) Section 2775 and the holding in Dynamex do not apply to the following, and instead, the determination of employee or independent contractor status shall be governed by Borello:

(1) An individual performance artist performing material that is their original work and creative in character and the result of which depends primarily on the individual’s invention, imagination, or talent, given all of the following conditions are satisfied:

(A) The individual is free from the control and direction of the hiring entity in connection with the performance of the work, both as a matter of contract and in fact. This includes, and is not limited to, the right for the performer to exercise artistic control over all elements of the performance.

(B) The individual retains the rights to their intellectual property that was created in connection with the performance.

(C) Consistent with the nature of the work, the individual sets their terms of work and has the ability to set or negotiate their rates.

(D) The individual is free to accept or reject each individual performance engagement without being penalized in any form by the hiring entity. 

          Keep in mind that this issue about burden of proof is not merely about some legal “nicety.”   It is a fundamental issue since if the engaging party has the burden of proof, then the above not-rhetorical and very practical question remains: 

Who would EVER take a chance on engaging a contributor even under the nearly-as-strict “Borello” test when, if the engaging party guesses wrong, the legal and financial consequences to the engaging party are potentially disastrous? 

         It would appear that this new bill and statutes will continue to present opportunities for uncertainty and, as indicated, uncertainty works to no one’s advantage. 

Conclusion 

          There are many other issues and provisions dealing with these and other occupations, professions and relationships.  In addition, there are other but related bills at various stages of legislation and passage dealing with these and other occupations, and there is the California Ballot Initiative Proposition 22 dealing with app-based drivers.  This article is limited to a discussion as to intellectual property creators and thus does not include any discussion of these other relationships etc.  This article is not intended to be exhaustive.  You should consult with an attorney about your specific situation. 

          Remember: AB 2257 and the statutes control over anything in AB 5 or my articles about AB 5.

Copyright © 2020 Ivan Hoffman.  All Rights Reserved.

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This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  You should not rely on this article in any manner whatsoever and you should not draw any conclusions of any sort from this article.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States laws but the laws of other countries may be different.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation. 

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No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.


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