AB 2257: Potential Compliance Options with California Law Governing Independent Contractor Arrangements (12pm-1:30pm)

  • Webinar
  • Wednesday, November 18, 2020

Join us on November 18, 2020 from 12-1:30pm for an overview with Nielsen Merksamer Lobbyist team as they review the changes AB 2257 inacts on AB 5.  

AB 2257 contains numerous changes to AB 5, including additional so-called exemptions, which result in the business activities in the exemptions being subject to the law governing independent contracting prior to the Dynamex supreme court decision and the enactment of AB 5.  This law is known as the Borello test.

 While there is no express exemption specific to health care professionals, changes were included in AB 2257 that form the basis for contracts between dietitians and those with whom they work to provide services.  They are the provisions governing the so called “business-to-business exemption” and the provisions governing referral agencies. 

 The appropriateness and validity of contract provisions that involve health care professionals coming directly to another business enterprise, as opposed to through a referral agency, are also reinforced by a Letter to the Journal submitted by Assembly member Gonzalez relative to AB 2257. In the second paragraph of that letter it states: “Nothing in AB 2257 suggests that when a hiring entity demonstrates that the conditions of outlined in paragraph (1) of subdivision (b) of section 2775 (the ABC test) for purposes of classifying an individual as an independent contractor, that the hiring entity must satisfy additional conditions outlined in sections 2776 through 2784.”  In essence, section 2776 (the “business to business” section, does not apply to these arrangements, but rather the ABC test applies.

 However, it must be noted that the ABC test contains one provision that raises doubts about the ability of one dietitian to contract with another dietitian.  The B portion of the test states “the person performs work that is outside the usual course of the hiring entity’s business.”  This is problematic for a dietetic practice contracting with a single dietitian rather than employing that person.  While conversations with the author’s office indicated there is some flexibility on this, we must conclude that there is risk to such an arrangement for both parties to a contract.

 However, the changes to the referral agency provision, section 2777, may provide the better path for contracting between dietitians.  AB 5 had a very limited list of activities that can be carried out through a referral agency.  The change included in AB 2257 state that the list “includes but is not limited to…” which is specifically intended to allow virtually any activity to be carried out through a referral agency arrangement.  We have confirmation this is the legislative intent with respect to this specific language.  The test for independent contractor status is then subject to the Borello test rather than the ABC test. This means that the B test is not a requirement when using a referral agency.

 There are specific requirements for an arrangement to meet the definition of a referral agency.  The responsibility for creating and operating referral agencies falls on the professionals themselves.  Contract provisions are necessary to ensure the proper structure has been created.

 It is noted that there are health care professionals currently using referral agency arrangements.  Some modifications may be necessary. In addition, it may be possible for a professional association to establish a referral agency.  This is worth further discussion and exploration.

Gigi Tsontos