Navigating the New Rules on Freelancing

In 1989, the California Supreme Court formulated a test
The California Supreme Court’s ruling set the standard for classifying workers as freelancers. It’s called the “Borello test” because it resulted from a dispute about a company by that name. Ever since, the test has defined the terms of our independence. It’s a light burden, fairly easy for us to meet. We’ve been meeting it even when we weren’t aware of it.

In the last few years, however, the economy has shifted and workers in many industries have become “gig workers,” labouring without protection, benefits or job security. Companies like Lyft, Uber and Postmates have built employee-free business models as a way to minimize labor costs and increase profits  – all at workers’ expense. In response, California labor unions  have pressed for major changes in Borello and other rules controlling hiring, and the legislature has complied. A recent significant bill was Assembly Bill 5. Though well-intentioned, it  was overly complicated and ambiguous, and so sweeping that it threatened the careers of independent workers.

Freelancers pushed back, including our Guild Freelancers unit of the Pacific Media Workers Guild. We helped convince the authors of AB5 to change course and submit new legislation that eased the burdens their bill imposed. The result was AB2257. It became law as California Labor Code, Division 3, Chapter 2, Article 1.5. The three are usually referred to as simply “AB5.”

The good news about the law: Writers, editors, photographers, and other creative workers can be exempt from the worst effects of AB5. The not-so-good news: We’re required to meet new tests to justify our status as independent workers. The tests cover old territory but in a new way.

Which test is for you?
If your current project is not part of your client’s usual course of business, you only need to meet the Borello test. As far as you’re concerned, on this project AB5 doesn’t even exist. For instance, if you’re ghostwriting a memoir for the CEO of a news website, you only need to meet Borello because the website doesn’t publish memoirs.

But … if your project is part of the client’s usual course of business, the ABC test applies and you need an exemption from it. You can probably qualify for the freelancer exemption and possibly others. For instance, if you’re writing content for the news website, you need an exemption from the ABC test because the website publishes news content, of course.

The Borello test
Borello is pretty easy for us to pass. Reading it carefully, you’ll see that it describes in great detail the way we already do business.

The first Borello criterion is crucial. As for the rest, the state says “individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.” Basically, pass the first criterion and all of the rest that you can. In typical circumstances, that’s usually enough.

❏    Control the manner and means of performing your work without supervision by your client. This is the most important criterion. Be sure you meet it.

❏    Work outside your client’s regular business. You can fail this one if you meet enough of the rest.

❏    Use your own tools and place of work except for special client requirements.

❏    Invest in your business, especially in the equipment and materials for the current project.

❏    Have a business in the work that you’re doing that’s separate from your client’s business.

❏    Do skilled work that is usually done in your locality by freelancers.

❏    Risk losing money in your business depending on your skill in managing it.

❏    Do temporary projects with defined goals and timelines.

❏    Have a short-term relationship with the client.

❏    Charge by the job or by the rights that you sell, not by your time.

❏    Hire your own workers and assistants instead of using your client’s employees.

❏    You and your client agree that you’re not creating an employer-employee relationship.

The new standard: The ABC test
In 2018, the state Supreme Court adopted a stiffer standard for classifying workers in wage-earning occupations (Dynamex). That decision became the basis for AB5 and its revisions. It applies to all workers now. It has only three criteria. We can work as freelancers if we meet all three:

A. Our contract says we, not our clients, control how we do our work, and clients respect our control throughout the course of a project.

B.   Our work isn’t part of the clients’ usual course of business.

C.  We’ve taken steps to establish a business in the work that we’re doing for the client.

This is called the “ABC test.” If we fail any of its three parts, we’re supposed to be hired as employees. Criterion B is a serious obstacle for us, of course. We often participate in the core businesses of our clients. Say we’re taking photos for a magazine article on wildfires. Publishing articles and photos is the magazine’s usual business, so we would flunk item B.

We need to find a way to keep our freelancer status. That way exists. We will still have to meet certain conditions, but if we meet them, we can bypass this ABC standard and again use the older, easier Borello standard.

To be clear, if your work is part of your client’s core business, you’ll need an exemption. For that, you’ll have to pass two tests—first win exemption from the ABC test then pass the Borello test.

The freelancer exemption
Most of us can usually qualify for the freelancer exemption from the ABC test (in the law, it’s the “professional services” exemption). There are different conditions to meet, depending on your specific occupation. If you meet them, you can be evaluated on the Borello standard. This is confusing, but if you meet all your conditions, you can keep your freelance status and your client doesn’t have to hire you as an employee.

Are you a graphic designer; grant writer; fine artist; creator of original and essential marketing material; administrator of human resources project; travel agent; IRS enrolled agent; payment processing agent; master class teacher; licensed aesthetician; or licensed real estate agent, appraiser or home inspector?

If yes, you must meet these criteria:

❏    A business location that’s separate from the client’s. It can be your home office.

❏    The business and professional licenses required in the locations where you work.

❏    A history of doing the kind of work you’re doing for the client or taking steps to find similar work.

❏    Generally use your own discretion and judgment in the performance of the work.

❏    Generally set your own hours except for special client requirements.

❏    Have the right to negotiate for your own rates instead of accepting what is offered.

Are you a writer; translator; editor; copy editor; illustrator; newspaper cartoonist; content contributor; advisor; producer; narrator; or cartographer for educational, academic and instructional works? Or are you a still photographer, photojournalist, videographer, or photo editor who doesn’t work on motion pictures?

If yes, meet the criteria above plus these three:

❏    A written agreement specifying your rate of pay, deadline(s) for payment, and copyright terms. It can be in emails, tweets, etc., instead of a formal contract, if it’s clear that all parties agree.

❏    Work primarily off-site.

❏    Don’t replace an employee doing the same kind and amount of work.

These are the only freelancers who can qualify for the freelancer exemption. As with Borello, the criteria aren’t unique. They generally describe how we work. If you meet them, you have an excellent chance of meeting the safer, easier Borello test, as well.

Summing up
Saving our freelancer status will likely remain a burden for us, but a surmountable one. All the rigmarole satisfies the state of California that we can freelance. The federal government and other states have their own rules, though. Massachusetts and New Jersey passed legislation like AB5 and other states are considering it; so are Congress, the Biden administration and the European Union.

In all this attention, the sticking point is AB5’s prohibition on our participating in a client’s core business. Thanks to effective lobbying, here in California we can arrange our work so we routinely qualify for an exemption and continue to pass the Borello test instead.

Our Guild Freelancers checklist for AB5 exemptions should help.

It’s our future and we can protect it.