California Freelance Law: Could It Set a Dangerous Precedent for the Nation?
As someone who has successfully supported my family as a freelance SEO writer and editor for the last seven years, I’ve watched and listened to both sides of the California freelance law debate with great interest despite living in the midwest. Full disclosure, I stopped referring to myself as a freelancer within six months because as most of us who work in this capacity know, many people who have absolutely no experience with it (or who failed at it) treat the concept as synonymous with “unemployed.” While there are some individuals who start freelancing because they are unemployed and find it a successful alternative to traditional work, most of us actively choose to work in this capacity.
What Is the California Freelance Law?
The California Freelance Law is the colloquial name for California Assembly Bill 5 (California AB 5). It became law in California on January 1, 2020. The purpose of the law was to protect gig workers (freelancers in various industries) who work in California. You do not have to live in California. You only have to work in California as a freelancer in certain industries to be affected by this law.
The California Freelance Law was passed after the Dynamex case was heard in the California Superior Court. It essentially adopts the already existing IRS standard (ABC standard) for determining if someone is an independent contractor or an employee. However, an employer can also use the Borello test to determine if they can exempt an individual from employee to independent contractor status.
What Is the ABC Standard?
To clarify, the IRS does not refer to their standard as the ABC standard. The Dynamex ruling refers to the classification standard as the ABC standard. You can compare the ABC standard to the IRS’ standard by clicking here to read the IRS standard. The ABC standard is:
- Whether the worker is free, both contractually and in how they actually are able to work, “from control and direction,” to perform their work;
- Whether “the worker’s service is outside the hiring party’s usual services; AND”
- Whether “the worker has an independently-established trade, occupation, or business of the same nature as the work performed.”
As freelancers, we are small businesses. We are, in some instances, microbusinesses. When I am talking with prospective clients one of the key factors I watch for is work independence. While I do have specific hours that I am available to answer questions (even with virtual schooling) and while I do preach the importance of being available for clients during predictable hours, the fact remains that my freelancing business is my business. I am not an employee. If a prospective client expects or demands that I am to be available during specific hours, I am not a good fit. It is also a potential violation of the IRS’ definition of an independent contractor (and I, for one, do not wish to get on the bad side of the IRS).
If more district courts (and, ultimately, Supreme Courts) are hit with similar cases and pass similar laws or work to pass similar laws because they believe this could be an issue, small businesses (such as mine and those that hire me) could be harmed in the long run. This is a shame considering small businesses provided 47.3% of the jobs in the private sector in 2019, according to the SBA. Think about it: freelancing means you can’t fire yourself.
What Is the Borello Test?
The Borello test determines if an employer qualifies to exempt an individual from employee status as an independent contractor. It relies on several standards instead of just three standards in the ABC standard that determines whether someone is considered an independent contractor.
For individuals who want to be considered an employee, this is an incredibly important concept. Just to be clear, I am not an attorney and I don’t play one on television. I opine for fun and profit. It’s what I do. If you have questions about whether you should be treated as an employee, you should seek legal advice and not rely on something you read online and not a random online opinion. I’m a writer.
According to The State of California Department of Industrial Relations, some of the factors of the Borello test include (and is not limited to):
- Whether the worker holds themselves out as working in a way that is distinct from the employer. For example, all of my clients know I’m a small business owner with multiple clients. They know I am not their employee.
- Whether the work is a regular or integral part of the business.
- Whether the employer or the person provides the necessities and the location for getting the work done. For example, I always provide my own laptop, software, and I always work from home.
- Whether the worker invested in the business, including equipment or material required to complete the work. For example, I pay monthly or yearly subscriptions to complete my work as a freelance writer and editor.
- Whether the work provided requires a specialized skill.
- The type of occupation, and whether the work is usually done under the direction of the employer or by a specialist without supervision. For example, I may talk to my clients to get the general direction about projects and what my clients want done (including deadlines for certain projects), but I also don’t really answer to any one person (except maybe my dogs…).
- The worker’s opportunity for profit or loss depending on their managerial skill.
- The length of time for which the services are to be performed.
- The degree or permanence of the working relationship.
- The method of payment, whether by time or by the job.
- Whether the worker hires their own employees. For example, technically I can, but I generally don’t. It’s difficult to find reliable help. Unfortunately, reliability is often an issue.
- Whether the employer has the right to fire at will or whether a termination gives rise to an action for breach of contract.
- Whether or not the worker and the potential employer believe they are creating an employer-employee relationship.
As a freelancer, it is very important to be incredibly clear with anyone you want to work with to determine the relationship before you ever start working with him. If they aren’t withholding taxes for you, they aren’t your employer. Maybe they’re paying you under the table. If they pay you more than $600, you need to fill out the right tax document and they need to 1099-NEC you (not 1099-MISC) unless they plan to write you off or unless you have a payment processor that issues you the right type of tax documentation at the end of each tax year
The TL: DR is this: the difficulty created by the California freelance law will scare the pants off of most small businesses if other states decide it’s a good idea to follow suit in some way. The onus will be on us as freelancers to educate businesses, keep better records, and ensure that we are classified properly as what we truly are: independent contractors.
California Freelance Law Exemptions
There is some good news, though (and, unfortunately, also some bad news…but to be fair, it depends on how you look at it). The California Freelance Law does come with a good-sized list of exemptions. The good news is that California AB 2557 was passed to modify and clarify the exemptions of AB5. According to The National Law Review, recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers, directors in the music industry, independent radio promoters, and other individuals involved in the creation of, production of, or marketing of independent music services appear to be exempt from the Borello test.
Freelance writers and photographers are no longer limited to the submission limit of 35 articles or projects to be exempt from Borello as long as:
- There is a written contract with a rate of pay, an explanation of intellectual property rights, and there is an obligation to pay by a specific time. (I find this to be a good thing because I see far too often on social media where many of you are either not getting paid or being paid in ridiculous things such as gift cards that you did not agree to receive.);
- Contracting you didn’t replace an actual employee;
- You do not primarily work at the location of the place you contracted with; and
- There isn’t a restriction that stops you from working for more than one entity.
Other professionals generally exempt include marketing professionals that are contracted that produce original and creative work, travel agents, contracted human resource administrators, graphic designers, grant writers, fine artists, enrolled agents, appraisers, professional foresters, home inspectors, licensed barbers, or anyone who sets their own rates and are paid directly by clients. However, Nolo’s website states that the ABC standard will apply to licensed manicurists on January 1, 2022.
Now for the bad news…Nolo reports other exemptions related to Borello that are substantially more complicated. Some professionals who want to be exempt from Borello must also pass six other factors.
I won’t get into the scandal surrounding rideshare or delivery. I know that’s a whole issue on its own both in California and the nation.
Bottom Line? It’s a Slippery Slope
We who work as freelancers are small business owners. Recently, I had a very short conversation with someone who does not freelance. This person thinks, on the whole, that freelancers are taken advantage of by big business. I’ve only had that almost happen one time. I won’t name the Forbes 500 company that attempted it. I caught it and I told them absolutely not. I won’t work with liars.
When we all first start out in business, there are lessons to learn. Am I saying that we should all learn by being suckers and being taken advantage of? No. In fact, big businesses would have nothing to do with me when I first started. I made two cents per word when I first started out. That was the rate I set. It had nothing to do with anyone else. I chose it. No one was taking advantage of me. I just didn’t know what to charge or what to do. It’s a learning experience.
I’m a small business. It’s what I am. It’s what freelancers are. Amazon started as a small business. So did Microsoft. So did Samsung for that matter. One of those, by the way, is the business that attempted to take advantage of me. I won’t tell you which because it doesn’t matter. I’m still around and making money.
Laws like the California Freelance Law are slippery slopes. If you want to protect employees, fine. I understand that. I understand protecting rideshare drivers and delivery drivers. I’ve watched them get the shaft. (Also, being a woman, you couldn’t pay me to ride in one given all the dangerous stories out there. No thank you.) However, those of us that choose to start a small business for any reason do not necessarily need it. If anything, it’s a slippery slope that tends to force microbusiness owners back into the ranks of traditional employment.
