California’s AB5 Bill and the Unintended Consequences for Freelancers - The Graphic Artist Guild (2022)

California’s AB5 Bill and the Unintended Consequences for Freelancers - The Graphic Artist Guild (1)

29 Jan California’s AB5 Bill and the Unintended Consequences for Freelancers

Posted at 05:36hin Advocacy, Business Practices, NewsbyTheGuild

A law passed in California had a noble goal: to prevent “gig” workers such as drivers for companies such as Lyft and Uber from being economically exploited. However, Assembly Bill 5 (AB5) has had some unintended consequences as some employers are letting go of their California-based freelancers, rather than deal with determining if they’re independent contractors or not. While graphic artists are, for the most part, exempt from the most stringent provisions of the law, there are broader implications of AB5.

The issue is that employers assume certain responsibilities for employees, such as abiding by state and federal regulations and withholding payroll taxes. Employers, in general, do not assume those responsibilities for freelance workers. Determining whether an individual is an employee or an independent contractor is not as simple as it sounds, and tests have been created by courts and agencies. (See our Tools & Resources article, Are You an Employee or Independent Contractor?.)

Classifying Workers: The Borello and ABC Tests

In California, two such tests have bearing in AB5. The Borello test resulted from the 1989 case, S. G. Borello & Sons v. Dept. of Indust. Relations (1989). In that case, the California Supreme Court considered whether a group of farm laborers were independent contractors or employees. The Borello test was devised as a list of 11 qualifications and became a standard for determining the classification of workers in California. A 2018 case, Dynamex Operations W. v. Superior Court, further narrowed employers’ ability to classify workers as independent workers by the application of the ABC test. Under the ABC test, a worker is considered an employee and not an independent worker unless they meet all three qualifications:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • The worker performs work that is outside the usual course of the hiring entity’s business;and
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Under the Dynamex court decision, the ABC test only applied California state wage and hour laws. AB5 was drafted to apply the ABC test to the classification of workers under the full scope of California unemployment and labor regulations. This means that unless an employer can prove all three criteria of the ABC test, a worker is considered to be an employee even if the worker and the employer have a written agreement stating that the worker is an independent contractor.

This creates a huge burden on employers and jeopardizes the livelihoods of broad swathes of freelance professionals. In recognition of this, the bill exempted about 50 different professions and businesses from needing to have the ABC test applied. The exempted professions and businesses must still meet the looser requirements of the Borello test.

(Video) Is the Music Industry DONE? AB5 Law Could Crush The Music Economy

Implications for Graphic Artists

Graphic designers and fine artists are specifically exempted from the ABC test as professional service providers. While illustrators are not listed, the US Department of Labor folds illustrators into the occupation category for fine artists, indicating that illustrators would also be exempt. These graphic artists must still meet six professional service provider requirements:

  • Have a business location
  • Negotiate their rates
  • Set their work hours
(Video) The PRO Act: How Would It Impact Freelance Writers?
  • Have or be available to other clients
  • Exercise their own judgement in performing their services
  • Beginning in June 2020, have a business license

Graphic designers and web designers who find work through a referral agency also benefit from exemptions created for those agencies. The referral agency must meet 10 requirements stipulated in AB5. For example, the service provider (or graphic artist) must be free from control of the referral agency, etc. (See Talentwave’s article on Understanding AB5’s Carveouts.)

It’s less clear how AB5 will affect web designers. While the carveout for referral agencies specifically lists web designers as service providers, web designers are not listed under the exemptions for professional service providers as are graphic designers and fine artists. Attorney Ivan Hoffman worries that web designers may fail the ABC test, since the work of a web designer – creating or editing a business entity’s website – is so integral to the operations of a business. The difficultly lies in the wording of the second prong of the ABC test: the worker performs work that is outside the usual course of the hiring entity’s business. “Business” is not defined in this context, leaving interpretation of the law up to the hiring companies.

For newspaper cartoonists, the professional services carveout includes a restrictive condition. Photographers, photojournalists, writers, and newspaper cartoonists are limited to only 35 submissions per year. Any number higher than that, and the individual must be considered an employee. This is a huge problem for professional freelancers with weekly or ongoing contracts with publisher. (Confusingly, marketing photographers are exempt from this limitation.)

Chilling Effect on Creative Industries

Predictably, AB5 has been opposed by gig-economy fueled businesses like ridesharing and food delivery services, whose labor practices the bill attempts to address. However, the bill is also facing legal challenges from the creative industries, in particular writers and photographers. The National Press Photographers (NPPA) and American Society of Journalists and Authors (ASJA) have filed a joint lawsuit challenging AB5 on its constitutionality. The lawsuit points out that the law, in imposing limits on some freelancers and not other visual artists, is violating the free speech of freelance writers, editors, and newspaper cartoonists.

There are also concerns that the law will have a chilling effect on the hiring of California-based creative professionals overall. In an interview on KUSI News station, California cartoonist Lisa Rothstein stated that she’s worried that companies will terminate contracts with California freelancers, rather than go through the process of determining if the freelancer would be exempt under AB5. She also points out that AB5 fails to take into consideration the vast numbers of creative professionals who either prefer or, because of family obligations and the like, require the flexibility and independence of freelancing.

Rothstein’s worries have already been borne out. On December 16, Vox Media announced that they would be moving their California team blog in-house, ending contracts with hundreds of California freelance workers. Rebecca Lawson, editor-in-chief of Vox Media’s SB Nation who got her notice of termination, wrote: “So, SB Nation has chosen to do the easiest thing they can to comply with California law – not work with California-based independent contractors, or any contractors elsewhere writing for California-based teams. I don’t blame them at all.”

(Video) Life After AB5 - The Independent Contractor v. Employee Distinction

Going Forward: New York and New Jersey

California lawmakers are being pressed to either repeal AB5, or make significant revisions to the law. In an article published by the San Diego Union-Tribune, “Three ways to fix the AB5 independent contractor law,” lawyer Dan Eaton states Assembly Member Lorena Gonzalez, the legislator who introduced AB5, emailed him that they intend to continue working on the legislation.

While public outcry against AB5 is gaining ground in California, similar laws are being considered in New York and New Jersey, and the Protecting Workers Right to Organize Act of 2019 (PRO Act) has been introduced into the House and Senate. The New York and New Jersey bills are similar to AB5, and all three employ the ABC test to narrow the definition of contract workers, raising the concerns of freelance workers. The hope is that California will be able to execute meaningful reform of the law that recognizes the complexity of the freelance worker labor force, and New York and New Jersey legislators will take note.

In the meantime, it’s advisable that graphic artists take steps to support their status as independent contractors by setting up an LLC. The process and requirements vary state by state. The process in California takes 10-steps and requires a $70 processing fee and California state tax obligations ($800 for an annual net income under $250,000).

Photo © Andrei Stanescu, iStock

(Video) What is AB 5 and What Does it Mean for Me? - Jonathan Handel

(Video) CLLO Ep9: Freelancers Against AB5 - The Stories are True!

FAQs

Are graphic designers exempt from AB5? ›

Under AB5's “Professional Services”, graphic designers are exempt from AB5 as they're qualified by specific statutory references.

What does AB5 mean for freelancers? ›

California Assembly Bill 5 (AB5) extends employee classification status to some gig workers. Under AB5, companies must use a three-pronged test to prove workers are independent contractors, not employees. 1. AB5 was designed to regulate companies that hire gig workers in large numbers, such as Uber, Lyft, and DoorDash.

How does AB5 affect independent contractors? ›

AB5 included exemptions, which received immediate backlash for lack of clarity. Thanks to Assembly Bill 5 (AB5), California made it significantly harder for businesses operating within the state to classify their workers as independent contractors instead of employees. The law took effect on January 1, 2020.

Is freelancing illegal in California? ›

In general, freelancers are considered their own business, rather than an employee. Thus employment law does not apply, including wage and hour laws, family and sick leave, unemployment benefits, workers compensation and disability benefits, and even most anti-discrimination laws.

Are graphic designers independent contractors in California? ›

Under California's new AB5 legislation, the legal requirements for working with a graphic designer as an independent contractor fall under the Borello test (not the ABC test) if they meet six additional requirements.

Who is exempt from AB5 California? ›

1. The worker is free from the control and direction of the hiring organization in connection with the performance of the work. 2. The worker performs work that is outside the hiring entity's business.

Do freelancers need a business license in California? ›

No, freelance writers do not need a business license in California. However, there are a few things to keep in mind if you plan on doing business as a freelance writer in the state. First, all businesses are required to register with the Secretary of State's office. This can be done online at their website.

Who benefits from AB5? ›

Independent contractors' “benefits” in California
BenefitEligibility
Social Security and MedicarePayroll taxes are not withheld in payments independent contractors receive. As a result, independent contractors must pay the Self-Employment Tax to cover Social Security and Medicare.
3 more rows
14 Nov 2019

What is the new AB5 law in California? ›

What is AB5? AB5, also known as the “gig worker bill,” was signed into law in September 2019 by California Governor Gavin Newsom, and requires companies hire independent contractors and reclassify them as employees.

Is it legal to freelance while working full time? ›

In many cases, you can do freelance work while you're employed, and it can be a good way to see if freelancing is right for you. But, it's also important to check your employment contract, get the go-ahead from your boss, and make sure your freelancing doesn't affect your regular work.

How long can you freelance for one company? ›

Simply put, there is no time limit on how long you can work for one company as a contractor.

How do you avoid AB5? ›

Under AB5, California workers are presumed to be employees unless they pass the ABC test.
...
Are LLCs exempt from AB5?
  1. Establish a business. ...
  2. Get an EIN or TIN from the IRS. ...
  3. Operate as a separate business. ...
  4. Demonstrate independence in business operations.
3 Sept 2020

Will AB5 be overturned? ›

California law provides many benefits to workers who are employed by a separate employer.

What does AB5 mean for owner-operators? ›

Under AB5, business capacity owners are no longer be permitted to enter into lease agreements with motor carriers for the exclusive right to their services and the use of their equipment. This category of driver has essentially become illegal.

Why are truckers protesting AB5? ›

Because AB5 changes how they would be classified, truckers are worried they will have to take on added costs, like buying their own insurance. Independent truckers who own or lease their own trucks and don't work for larger companies worry they will be forced to spend tens of thousands of dollars on insurance premiums.

Are artists considered independent contractors? ›

Artists/event hosts are called and hired as independent contractors, but by legal definition they are not. An independent contractor makes their own schedule and sets the pay for the job.

What happens if you violate AB5? ›

Penalties for violating California AB 5 are severe. Employers can be subject to a civil penalty ranging between $5,000 – $15,000 per violation, in addition to other penalties or fines (e.g., back wages).

What are the four 4 factors used to determine whether someone is an independent contractor? ›

The factors are (1) the degree of control that the putative employer has over the manner in which the work is performed; (2) the worker's opportunities for profit or loss dependent on his managerial skill; (3) the worker's investment in equipment or material, or his employment of other workers; (4) the degree of skill ...

Is AB5 still in effect in California? ›

Appellate court reversal of earlier injunction now in effect following Supreme Court's decision not to review. The injunction that kept California's independent contractor law, AB5, out of the state's trucking sector is officially dead.

Is AB5 being enforced? ›

On Aug. 29, an injunction that prevented California from enforcing the strict worker classification law on the trucking industry was lifted, allowing the state to officially enforce the law.

What is the new law for owner operators in California? ›

Ready or not, a change has come for owner-operators based in California. State bill AB5, also known as the “gig worker bill,” restricts companies from classifying workers as independent contractors rather than employees.

Do I need to register as a business to freelance? ›

If you are a freelancer, no matter what type of work you do, you should consider registering your business. It can provide benefits, from helping you take full advantage of tax credits to looking more professional for your clients. It is also fast and simple to do, as long as you do it the right way.

Do I need to register as a business to do freelance work? ›

Do I have to form an LLC to freelance? No. You don't need to form an LLC to work as a freelancer, but keep in mind that operating as a sole proprietorship or general partnership means you're personally liable should anything happen. An LLC can prevent this by separating your personal assets from your business assets.

Do freelancers need a business license in Los Angeles? ›

Do freelancers or independent contractors need a business license in LA? Yes. Freelancers and independent contractors (paid by tax form 1099) are essentially their own business.

Do California labor laws apply to independent contractors? ›

Independent Contractors and the Cannabis Industry

Paying independent contractors in California does not require minimum wage, workers' compensation, unemployment insurance, paid sick leave, or family leave. Therefore, independent contractors increase flexibility in business operations and save on costs.

Are independent contractors allowed in California? ›

An individual is an independent contractor in California only if they meet all three (3) requirements of the test: The worker remains free from managerial direction and control related to the worker's performance. The worker performs duties outside the scope of the company's course of business.

Do I need workers comp for independent contractors in California? ›

Workers' Compensation Rights for Independent Contractors in California. Independent contractors are not eligible for workers' compensation coverage; employers are not required by state law to purchase coverage for independent contractors.

What is the purpose of AB5 law California? ›

AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders.

What qualifies as an independent contractor in California? ›

In general, an independent contractor is someone who is in business for himself or herself. Independent contractors usually perform work that requires a specialized skill or trade that is not part of a company's regular business.

Does AB5 ban owner-operators? ›

Does AB5 ban owner-operators? No, AB does not ban owner-operators in California. However, the law does make it very difficult for trucking companies to use them.

How do copyright laws protect digital designers? ›

Copyright law is the law that protects creative work from unauthorized copying and usage. Illustrations, photographs, and graphic design that users reproduce and exploit for commercial purposes without the permission of the owner or designer is a clear violation of this law.

What are some ethical issues in graphic design? ›

In addition to copyright law and fair use issues, font licensing, piracy, plagiarism, and image usage rights are some of the other legal issues that graphic designers need to be knowledgeable about.

Why is legislation important in graphics designing? ›

Copyright legislation is in place to protect the work that you create and prevents you from using other people's work without their authorisation. In many cases you may be prepared to assign your rights in your original work to your client or license them to use it while retaining ownership.

What is digital graphics legislation? ›

Legislation In the context of digital graphics, this refers to the differences between copyright protected, copyright free, royalty free and use of trademarks. For example, a final graphic may be considered as an orphan work but the copyright on component images and assets remains with the original author/owner.

Who owns the rights to a graphic design? ›

Copyright law assigns ownership of a piece of work to the person who actually created the work. That means it automatically belongs to the designer. Any change to that ownership depends on the terms set out in your contract.

Does copyright law apply to graphics? ›

Graphics such as illustrations, paintings, computer generated graphics, sketches, drawings and designs are all protected under copyright law. Copyright law protects artistic works such as graphics by granting the author an exclusive bundle of rights.

How much do you have to change artwork to avoid copyright? ›

Accordingly, you cannot claim copyright to another's work, no matter how much you change it, unless you have the owner's consent. See Circular 14, Copyright Registration for Derivative Works and Compilations.

How do you know if a graphic is ethical? ›

Ethics in Graphic Design
  1. Designs should not be misleading. ...
  2. Designs shouldn't hurt the user experience. ...
  3. Messaging, disclaimers, and policies are clear and legible. ...
  4. Image Source. ...
  5. Use proper representation and embrace inclusion, whenever possible. ...
  6. Designs should be accessible. ...
  7. Designs should promote safety and security.
11 Dec 2020

Why do graphic designers need to work ethically? ›

Ethics is concerned with how our choices and actions affect others. It forces us to think beyond our own good and consider the good of others. It's important for designers to understand how ethics relates to product design because products are designed for people, and product design impacts the way people live.

Can a client sue a designer? ›

Supplying them with information or advice that turns out to be wrong and can be proven that it's wrong will assuredly backfire. Giving bad advice will cause issues and the client(s) can turn around and sue a designer they have hired.

How do I protect my graphic design work? ›

To receive full legal protection for your graphic design, it must be registered as a copyright. As a creative, you may not think about copyrighting a graphic design—but to receive legal protection, it might be a good idea to consider how to register your work.

How does copyright affect graphic designers? ›

Your client can use the design only in the context it was first commissioned for. If they want another designer to adapt your design, they will need your permission first. Legally savvy clients know this and will want you to sign over copyright.

What does copyright cover for digital graphics? ›

The basics

Photographs, illustrations and other images will generally be protected by copyright as artistic works. This means that a user will usually need the permission of the copyright owner(s) if they want to perform certain acts, such as copying the image or sharing it on the internet.

How does copyright affect digital graphics? ›

Image copyright

Usually, the copyright belongs to the person who creates the image, unless it was created for an employer, in which case the employer owns it. However, if a design includes images of another person, you may need their written permission before using it in a promotional campaign.

Why are some graphics protected by copyright laws and others not? ›

Some elements don't have enough creative expression to qualify for copyright protection. This includes facts, lists of data, blank forms, and common geometric shapes or symbols, such as circles, squares, hearts and smiley faces. You don't need permission to include them in your compilation. 2.

Videos

1. How the PRO Act Will Harm Workers, Entrepreneurs, and Job Creators
(Institute for the American Worker)
2. Repeal AB5 Virtual Town Hall
(carldemaioCA)
3. Webinar: AB 2257 Version 2 0 of AB 5, California’s Landmark Independent Contractor Legislation
(Seyfarth Shaw LLP)
4. Andrew Heaton Reveals the Most Insane Occupational Licensing Laws in California
(Pacific Legal Foundation)
5. AB 5 and the Arts Webinar (3/10/21)
(Create CA)
6. Does the Gig Economy Require Regulation?
(BBB National Programs)

Top Articles

Latest Posts

Article information

Author: Kelle Weber

Last Updated: 11/23/2022

Views: 6248

Rating: 4.2 / 5 (53 voted)

Reviews: 84% of readers found this page helpful

Author information

Name: Kelle Weber

Birthday: 2000-08-05

Address: 6796 Juan Square, Markfort, MN 58988

Phone: +8215934114615

Job: Hospitality Director

Hobby: tabletop games, Foreign language learning, Leather crafting, Horseback riding, Swimming, Knapping, Handball

Introduction: My name is Kelle Weber, I am a magnificent, enchanting, fair, joyous, light, determined, joyous person who loves writing and wants to share my knowledge and understanding with you.