The new law governing independent contracting, AB 5, includes what can be described as a business-to-business (B2B) exemption. But 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 (misclassification liability may include unpaid minimum wage, overtime, meal and rest breaks, unpaid Federal, State and local income tax, Private Attorneys General Act penalties, unpaid sick time, unpaid work related expenses, workers’ compensation premiums, and unemployment compensation, just to name a few).
To qualify for the B2B exemption, the contracting business must show that it meets all of the 12 requirements of this exemption. Thus, failing to meet just one of the 12 factors means the business entity does not qualify for the 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: Read More