CARLSBAD — Nearly 40 people mostly representing small businesses gathered Feb. 4 at New Village Arts regarding the new employment law rocking the state, Assembly Bill 5.
Business attorneys Renie Leakakos and Assly Sayyar spoke for about 30 minutes regarding the new law and how it is impacting independent contractors. Due to the complexity and broadness of the law, the attorneys cautioned business owners and contractors to research their particular situations; noting for many the business-to-business (B2B) aspect and locking in contracts to ensure compliance.
AB 5 expanded the Dynamex decision, which was a lawsuit regarding wage orders, to include hundreds of professions where employers must meet a stringent test in order for the contractors to be deemed independent.
Leakakos and Sayyar also said despite public backlash, especially on social media, the effect of the law has been overblown by some.
Sayyar said contractors and employers must look through the law and its list of exemptions to determine which classification best suits each party. For example, there are occupational, professional services, referral agency, construction and B2B exemptions.
“If you have a license with the state, you probably fall into the occupational exemption,” Sayyar said, adding not all licensed workers, such as real estate appraisers, may be covered.
The two attorneys did say the law, which was signed Sept. 18, 2019, and enacted on Jan. 1, is vague. Mostly, though, the two reviewed the “ABC” test, in which Sayyar said most clients and contractors stumble on the “B” and “C” parts, while most people will pass “A.”
The B part of the test is whether the contractor does work outside the usual course of the hiring entity’s business; and C is whether the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
Leakakos stressed the use of contracts for potential business relationships, in addition to business formation for contractors, such as an LLC or S-corp.
However, at a seminar about two weeks ago in San Diego, representatives from the Employment Development Department said the B2B exemption will not apply to freelance writers, who are limited to 35 submissions to client.
During a seminar in November, Schuyler Moore of the Beverly Hills Bar Association said under the California labor code, a person(s) is also defined as a corporation, thus eliminating the possibility of a B2B exemption.
“It is very clear that a payment provided to a corporation that performs services in the usual course of business of the payor,” Moore said.
Leakakos and Sayyar said there are plenty of methods for contractors to remain as they are, while keeping the work with their clients.
Alex Goodman of New Village Arts asked what the best path is forward for the small theater in Carlsbad Village. Leakakos advised vendor contracts with actors and performers even though the “fine artists” definition in AB 5 is unclear.
Several lawsuits are currently challenging the constitutionality of the law, while legislators have also introduced dozens of amendments and even a repeal. The bill’s author, Lorena Gonzalez (D-San Diego) has said she and the legislature will continue clarifying language.