Assembly Bill 2257 (formerly AB5) is an updated piece of legislation restricting the classification of an independent contractor in the state of California to those individuals able to meet all three requirements of an “ABC” test. In order for a worker to be classified as an independent contractor, they must:
- A) Be free from the control of the company they are working for,
- B) Perform work that’s outside the course of the company’s usual business, and
- C) Have their own independently established trade, occupation, or business.
AB 2257 was passed shortly after AB5 in September of 2020. The focus of the bill is clarifying, and in some cases, expanding the industry-specific exemptions set out in AB 5.
As a reminder, upon its passage in 2020, AB5 codified and expanded on the 2018 California Supreme Court Dynamex decision. In 2004, Dynamex — a nationwide same-day delivery service — converted all of its drivers from employees to independent contractors, leading to litigation initiated by a former employee. The Court embraced a standard presuming that all workers are employees, not contractors, and placed the burden on employers to establish the appropriateness of classifying an individual as an independent contractor based on the newly adopted “ABC” test.
Under AB5, classification as either an independent contractor or an employee affects the applicability of labor laws such as minimum wage, overtime pay, and workers’ compensation. States and cities will have the right to file suit against companies over misclassification, overriding common arbitration agreements currently in use.
California’s legislation on labor classification has set a precedent for legislative developments in other states––namely Washington, New Jersey, and Massachusetts.
Field Nation has consistently evolved alongside these new regulations to meet the needs of our users. In 2020, we added visibility to technicians that have been registered as an employee of a business. The companies employing these technicians must also confirm they have the following:
- An Employer Identification Number (EIN)—a nine-digit number assigned by the IRS to identify taxpayers required to file business tax returns.
- Three or more employees and that the technician is a W2 employee of that company.
- A worker’s compensation insurance certificate.
Tips for navigating upcoming regulatory changes
Companies publishing field service work to the platform
As the regulatory environment continues to evolve, here are some DO’s and DON’Ts to guide your usage of independent contractors
- DON’T post assignments that are 40+ hours per week with set hours
- DON’T post long-term assignments that last consecutive weeks or months
- DON’T require providers to work exclusively with you without the ability to do other work
- DON’T provide training on how to do a job in its entirety
- DON’T provide all the tools necessary to complete the job
- DO specify a clear beginning and end date for any project.
- DO have a well-defined scope of work for any contract assignment.
- DO pay contractors on time and offer a fair and competitive rate.
New regulations are an opportunity to assess your risk. If you are unsure of whether the work you are asking to be performed or the applicable worker classification violates your state’s legislation, we highly recommend consulting with legal representation to determine the best path forward for your business.
Companies accepting and performing work on the platform
While AB 2257 will likely require additional steps to ensure compliance, it also offers an opportunity for service companies on Field Nation to secure new business in the state of California.
Registered Service Companies may fit the B2B exception contained in AB 2257 because they formally employ people and provide Work Comp. Service companies that are not verified would not necessarily fit this exception because it is more difficult to ascertain whether they are a legitimate businesses.
Our team is available to work with service companies to confirm that they meet the “Prong C” (independent business or trade) requirements, including an Employer Identification Number (EIN), worker’s compensation insurance, and employing three or more people.
Independent contractors will continue to be supported on our platform. Since the regulation is related to the type of work being performed, companies will still be able to compliantly engage with an independent contractor. Some field service organizations may prefer to do business with employees rather than individual contractors. For these instances, we see this as an opportunity for technicians to create their own service business.
Whether you’re a field service organization, service company, or independent technician, we believe it’s our responsibility to help you navigate the evolving regulatory environment, make informed choices, and continue to engage with or provide on-demand service work in California and the rest of the country.
The material on this site is intended to be informational only. It is not legal advice or guidance. Readers should contact their attorney to obtain advice with respect to any particular legal matter.
A previous version of this blog covering the passage of AB5 can be found here.