Exempt Job Categories Under California’s AB5 Law

California’s Assembly Bill 5 (AB5) was signed into law in 2019 and went into effect on January 1, 2020. The law was designed to protect workers in the gig economy by requiring companies to classify them as employees rather than independent contractors. This classification would give workers access to the minimum wage, overtime pay, and workers’ compensation.

However, not all workers are covered by AB5. The law includes many exemptions for particular job categories. In this article, you learn about these exempt job categories and what they mean for workers in California.

Independent Contractors vs. Employees in California

Independent contractors work for themselves and provide services to other businesses. They are not considered employees of those businesses and are therefore not entitled to the same benefits as employees. Independent contractors are responsible for paying their taxes and are not covered by workers’ compensation.

On the other hand, employees work directly for a business and are entitled to certain benefits under California law. These benefits include the minimum wage, overtime pay, sick leave, and workers’ compensation.

Exempt Job Categories

AB5 includes many exemptions for particular job categories. These exemptions allow companies to classify workers as independent contractors rather than employees.

Here are some of the exempt job categories under AB5:

• Business-to-Business (B2B) Contractors.
• Referral Agencies.
• Professional Services.
• Construction Industry.
• Freelance Writers and Photographers.
• Real Estate Agents.
• Commercial Fishermen.

These exemptions have specific requirements that must be met for a worker to be classified as an independent contractor. For example, freelance writers and photographers must submit at most 35 submissions per year to a single publication to qualify for the exemption.

California’s ABC Test

The ABC test is a three-pronged test that companies must use to prove workers are independent contractors, not employees. Under AB5, companies must use this test to regulate companies that hire gig workers in large numbers, such as Uber, Lyft, and DoorDash.

The three prongs of the ABC test are:

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

Uber and Lyft resisted the requirements of AB5. They were ordered by the California Superior Court to reclassify their contract drivers as employees with the same protections and benefits as their other staffers. However, the California governor signed a new law that exempts freelance journalists from the ABC test.

Workers Must Pass Borello Test

Except for app-based drivers, real estate salespeople, and repossessors, workers in all the exempt categories must pass the Borello test to be classified as ICs. The Borello test (based on the California Supreme Court’s decision in Borello vs. Dept. of Industrial Relations) is similar to the right of control test used by the IRS.

Several tests can be used to determine if a worker is an employee or an independent contractor. Some of these tests include:

• The Common Law Agency Test.
• The Economic Realities Test.
• The Hybrid Test.
• The IRS 20-Point Test.

Workers Subject to the Borello Test

Workers who need to satisfy the Borello test to be considered independent contractors include the following:

• Physicians, 
• Surgeons, 
• Dentists,
• Podiatrists, 
• Psychologists, 
• Veterinarians, 
• Insurance brokers, 
• Underwriters, 
• Premium auditors, 
• Risk managers, 
• Lawyers, 
• Architects, 
• Landscape architects, and 
• Engineers private investigators 
• Accountants 

Top Los Angeles employment lawyers could guide you and help determine your eligibility if you need clarification about whether to undergo a Borello test. 

Workers Providing Professional Services

Workers providing various types of professional services are ICs if they pass the Borello test—plus satisfy the following additional six factors:

• Maintain a business location separate from the hiring firm—this may include their residence.
• Have all required professional or occupational licenses.
• Be able to set or negotiate their rates for services performed.
• Be able to set their hours of work.
• Be customarily engaged in the same work under contract with another hiring entity or hold themselves out to other potential customers as available to perform the same type of work.
• Customarily and regularly exercise discretion and independent judgment in the performance of their services.

Freelance Writers and Editors

Freelance writers and editors qualify as ICs only if they meet  particular requirements. The exception covers:

• Freelance writers, 
• Editors, 
• Translators, 
• Copy editors, 
• Illustrators, 
• Newspaper cartoonists, 
• Still photographers, 
• Photojournalists, 
• Videographers, 
• Photo editors

The above workers must work under a written contract specifying the rate and payment time.

Licensed Barbers, Electrologists, Cosmetologists, and Estheticians

Licensed barbers, electrologists, cosmetologists, and estheticians also qualify as ICs under this exception if they meet the above requirements and also:

• Set their rates. 
• Process their own payments. 
• Are paid directly by clients.

Business-to-Business Contractors

One of the exemptions in AB 5 is for bona fide “business-to-business” contracting relationships. The statute describes these as relationships in which a “business service provider” provides services to a “contracting business.”

Construction Subcontractors

Subcontractors in the construction industry are exempt from the ABC test in California. They qualify as ICs if they pass the Borello test and satisfy the following criteria: 

• The subcontract is in writing. 
• The Contractors State License Board licenses the subcontractor, and 
• The work is within the scope of that license.

Consider hiring an attorney when facing legal issues related to AB5 that require professional expertise. Some legal issues that may need an attorney include disputes over worker classification, wage and hour claims, and wrongful termination claims.