News from CalChamber

Sacramento, CA: The new law governing independent contracting, AB 5, includes what can be described as a business-to-business (B2B) exemption, however a close examination of the actual language shows that the B2B exemption is virtually inoperable.

The author of AB 5 consistently states that the B2B carve-out provides relief to freelancers and sole proprietors to continue operating in the state and not be subject to AB 5’s ABC test. However, even if a service provider can establish that it meets all of the factors, misclassification liability on the hiring entity is so great that no one wants to take the risk.

To qualify for the B2B exemption, the contracting business must show that it meets all of the 12 requirements of this exemption. Businesses must keep in mind that, even if the B2B exemption does apply, businesses still need to satisfy the Borello test which is a demanding standard in and of itself.

While many of the factors are problematic, the following 4 factors make it nearly impossible for businesses to benefit from this ABC test exemption:

(B). The business service provider is providing services directly to the contracting business rather than to customers of the contracting business.

(G). The business service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity.

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

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

The current B2B exemption language needs significant cleanup to allow entrepreneurs in this state to continue providing services. Failing to further amend AB 5 to broaden the B2B exemption has the potential to eliminate the vast majority of independent contractors in California.