AB 5, which clarifies the tests for determining if a person is an employee or independent contractor, went into effect January 1. AB 5 however is based on a court case that already changed the law with respect to classification of independent contractors. AB 5 codifies the decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) that presumes a worker is an employee unless a hiring entity satisfies a three-factor test, and exempts from the test certain professions and business-to-business relationships.
AB 5 was introduced to deal with the “gig economy” workers, but its impacts have far exceeded that goal. Last year, APA focused on the business-to-business exemption that was inserted into AB 5 to exempt independent contractors that did not want to be classified as employees, and it was our understanding that this exemption would apply to many contract planners. However, this would not cover instances where planning companies provide contract staffing to a public agency where the planner is actually filling in temporarily as a planning director, etc. and working in City Hall or other government building since one of the AB 5 tests is that the contractor maintains a business location that is separate from the hiring entity.
Below is an overview of the business-to-business exemption in AB 5 that can be used as a guide for planning companies and contractors providing services to cities and counties and other public agencies. If the answer to each of the questions below is “yes,” the business-to-business exemption may apply. Please note that this guide is informational but not intended as legal advice, and planners and public agencies are encouraged to consult with legal counsel for advice on individual situations that planners may be facing as a result of this bill.
AB 5 Business-to-Business Exemption Information
For professional services performed under the requirements of AB 5 as an independent contractor, below is a list of key questions:
- Does the contractor maintain a business location that is separate from the hiring entity (including the individual’s residence);
- Does the contractor maintain a business license if the work is performed more than six months after the effective date of AB 5;
- Does the contractor have the ability to set his or her own hours and set or negotiate his or her own rates;
- Does the contractor customarily engage in the same type of work performed under contact with another entity; and
- Does the contractor customarily and regularly exercise discretion or independent judgment in the performance of the services.
APA has been notified in the last few months that some cities and counties instead of using the business-to-business exemption are instead not hiring any independent contractor planners. APA will be meeting with the League and CSAC soon and we will be discussing AB 5 compliance/fixes with them. There are also many bills already introduced this year that will attempt to narrow the application of AB 5 that may be an opportunity to provide an exemption for planners, public agencies, small businesses or LLC’s.
If you have experienced problems in hiring as a result of AB 5, please send any information to APA at [email protected]. APA will continue to update members on implementation of and amendments to AB 5.