Legislation Creates Business-to-Business Exemption from ABC Worker Classification Test

On February 12, Assemblyman Chad Mayes (I-Yucca Valley) introduced Assembly Bill 612, which would create a business-to-business exemption from the “ABC Test” for worker classification.

The bill would add Section 2776.5 to the Labor Code. Under existing law, California’s Labor Code uses the ABC Test to determine the proper classification of workers as employees or independent contractors. The law contains over 100 exemptions for different types of workers.

These “exemptions” mean those types of workers are not subject to the ABC Test if specified conditions are met and instead the determination of proper worker classification is determined by the “Borello factors,” based upon a 1989 California Supreme Court decision. AB 612 would create a new exemption from the ABC Test for a bona fide business-to-business arrangement that involves a voluntary deposit, as described, under specified conditions.

AB 612 would add Section 2776.5 to the Labor Code. It would include 14 conditions to be met in order for a bona fide business-to-business arrangement that involves a voluntary deposit to be exempt from the ABC Test.  Among the condition would be that a depositor is a partnership, limited liability company, limited liability partnership, or corporation that utilizes its own employees to produce, locate, or procure tangible personal property, which it owns, leases, or otherwise has the lawful right to possess, and which it delivers to a depositary to sell or lease to the public on its behalf under the terms of a written deposit agreement.

In addition, the depositary must utilize its own employees to sell or lease the depositor’s tangible personal property to the public, have at least three employees, the depositary determines the salary and benefits that it pays to itself and its employees, the depositary sets the hours of work of its employees, and the depositary engages in marketing activities to promote the sale or lease of the depositor’s tangible personal property and develop a customer base for itself.

The bill would also include the requirements that the terms be in writing and that the agreement contains specified provisions. Also, in purchasing or leasing the deposited property, customers of the depositary make payments to the depositary, which collects the payments for the benefit of the depositor. A commission must be paid to the depositary, that the depositary’s primary business activity is the offer, sale, or lease of tangible personal property placed in its custody by one or more depositors, and that the relationship is not a franchise.

The exemption provided by AB 612 applies to commercial arrangements that qualify as a voluntary deposit pursuant to the Civil Code. And, this exemption applies only to a depositary. This bill is expected to receive a hearing in late March.