How California’s AB5 Law Affects Independent Meeting Planners

In September 2019, the state of California passed its Assembly Bill 5 (AB5), revising the way that employees and independent contractors are classified. (niroworld/Adobe Stock) Most event managers hire a variety of local service providers in each of their event destinations. Those service providers may include electrical workers, floor managers, security consultants, decorators, transportation providers, caterers, tour guides, and AV consultants. These vendors may be self-employed, independent contractors who help in the execution of successful, memorable events for a variety of groups that come to town — but new legislation in some states may make it more difficult or cost-prohibitive to continue working with them. These new laws and bills revise the way that employees and independent contractors are classified. They are aimed at gig economy companies that misclassify employees as contractors in order to avoid paying minimum wage, overtime, benefits, and payroll taxes. But their narrow definitions of independent contractors are also threatening the ability of true independent contractors to continue working and earning a living in their states — as well as the ability for event managers and others to hire these professionals on a case-by-case basis. In September 2019, the state of California passed its Assembly Bill 5 (AB5), which will go into effect this month. At press time, New Jersey was scheduled to vote on its Senate Bill 4204 (S4204), which includes an even narrower definition of independent contractors than AB5. A similar law has been introduced in the New York State Senate, and other states are expected to follow suit. With the ink barely dry on AB5 and other bills still under consideration, the events industry is unsure about how the laws might affect operations — the Events Industry Council (EIC) says members are exploring the issue. While EIC does not take formal positions on specific pieces of legislation, the organization recommends that event planners keep an eye on these and other bills that may come behind them. “Build strong partner relationships and leverage the knowledge and resources they offer, in addition to those provided by industry organizations who represent those who may be affected by this legislation,” Amy Calvert, EIC CEO, suggested. “Also, take the time to ask questions regarding the potential short- and long-term impact, not only to your bottom line, but to the overall convention experience.” What Do the Laws Say? Traditionally, independent contractors and employees in California have been classified by the “right to control” test — i.e., whether the person to whom service is rendered has the right to control the manner and means of accomplishing the desired result. In addition to that primary test, courts also considered a number of secondary factors such as the length of service, skill required for the position, and payment by the hour or the job. California’s AB5 tightens that definition, using what’s known as the “ABC test” and placing the burden of proof on the hiring party. Under the new law, a person providing labor

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AB5

AB5

In September 2019, the state of California passed its Assembly Bill 5 (AB5), revising the way that employees and independent contractors are classified. (niroworld/Adobe Stock)

Most event managers hire a variety of local service providers in each of their event destinations. Those service providers may include electrical workers, floor managers, security consultants, decorators, transportation providers, caterers, tour guides, and AV consultants. These vendors may be self-employed, independent contractors who help in the execution of successful, memorable events for a variety of groups that come to town — but new legislation in some states may make it more difficult or cost-prohibitive to continue working with them.

These new laws and bills revise the way that employees and independent contractors are classified. They are aimed at gig economy companies that misclassify employees as contractors in order to avoid paying minimum wage, overtime, benefits, and payroll taxes. But their narrow definitions of independent contractors are also threatening the ability of true independent contractors to continue working and earning a living in their states — as well as the ability for event managers and others to hire these professionals on a case-by-case basis.

In September 2019, the state of California passed its Assembly Bill 5 (AB5), which will go into effect this month. At press time, New Jersey was scheduled to vote on its Senate Bill 4204 (S4204), which includes an even narrower definition of independent contractors than AB5. A similar law has been introduced in the New York State Senate, and other states are expected to follow suit.

With the ink barely dry on AB5 and other bills still under consideration, the events industry is unsure about how the laws might affect operations — the Events Industry Council (EIC) says members are exploring the issue. While EIC does not take formal positions on specific pieces of legislation, the organization recommends that event planners keep an eye on these and other bills that may come behind them.

“Build strong partner relationships and leverage the knowledge and resources they offer, in addition to those provided by industry organizations who represent those who may be affected by this legislation,” Amy Calvert, EIC CEO, suggested. “Also, take the time to ask questions regarding the potential short- and long-term impact, not only to your bottom line, but to the overall convention experience.”

What Do the Laws Say?

Traditionally, independent contractors and employees in California have been classified by the “right to control” test — i.e., whether the person to whom service is rendered has the right to control the manner and means of accomplishing the desired result. In addition to that primary test, courts also considered a number of secondary factors such as the length of service, skill required for the position, and payment by the hour or the job.

California’s AB5 tightens that definition, using what’s known as the “ABC test” and placing the burden of proof on the hiring party. Under the new law, a person providing labor or services for pay is considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

A The person 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 work and in reality.

B The person performs work that is outside the usual course of the hiring entity’s business.

C The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The law does not apply to some types of professionals, such as real estate agents, doctors, lawyers, and engineers, if they meet certain requirements. But a number of independent workers will automatically be considered employees of the companies that were once their clients, and simply incorporating their businesses doesn’t exempt them from the law. According to UC Berkeley research, just 9 percent of independent contractors in California will be unaffected by AB5 and 64 percent definitely will be affected.

New Jersey’s S4204 is similar, but at least one version of the bill was even more restrictive than the California law. It has drawn criticism from a variety of independent contractors by choice, including translators, video producers, writers, and others who say the bill, if signed into law, will drive their clients to hire service providers outside the state. Even if current clients agreed to hire their contractors as employees, many of these contractors prefer the flexibility of being their own bosses.

The bill has been raced through the legislature “because the New Jersey governor and legislature believe that the state is missing out on substantial revenue that can be gained by more workers being treated as employees,” said Mark Kluger, founding partner at the management-

Mark Kluger

Mark Kluger

side employment law firm Kluger Healey in Fairfield, New Jersey. “The fact is, though, that in many instances, the classification of a worker as an independent contractor is based on the worker’s request — not the company’s.”

While many opponents believe that measures like AB5 and S4204 significantly change the rules, Kluger says they really don’t; they just make it tougher for those who violate the rules. “The IRS, the departments of labor, and the courts already apply the same or similar tests to determine whether a worker is an IC [independent contractor] or employee,” he said. “The laws simply codify what those agencies and the courts have been doing for many years already. The laws do, however, make violations significantly more costly.”

Legislation’s Effect on Events

The impact of this legislation will vary from one event to another. If an organization directly hires a true independent contractor for a specific event, and that contractor runs his or her own business, is free to work for others, and does not provide the same or similar services as the hiring entity, the law will not affect that transaction, Kluger said.

However, say an organization hires an independent AV company for its event. The AV company may be a bona-fide business, but it may hire a variety of independent contractors to perform the work for its clients’ events. Because those independent contractors perform the same type of work as the client hiring them, they will no longer pass the ABC test and will be considered employees in the eyes of the law. Suddenly, that AV company must pay overtime, payroll taxes, unemployment taxes, and other fees — and those extra costs will likely be passed along to the organization holding the event.

Jen Hwang

Jennifer Hwang

“Based on the ABC test, which would potentially become even more strict with S4204, companies forced to reclassify certain workers as employees would mean an estimated 20-percent to 30-percent cost increase,” said Jennifer Hwang, an expert on AB5 and chief strategy officer at tilr, a talent-matching service. “These additional costs would likely be passed on to clients looking to engage with the organization’s services, whether it be an individual gig economy service, such as a ride or a delivery, or for meetings and events services. Therefore, affordability in working with such professionals could distinctly diminish.”

Whether costs increase may depend on where event planners utilize the services of independent contractors, such as inside convention centers or on tour buses. Bob Sauter, general manager of San Francisco’s Moscone Center, said AB5 should not affect how labor is hired for events at his venue. “Groups contract with general services contractors who provide the talent to produce events or conferences in Moscone Center,” he said, and they “are represented by collective bargaining agreements.”

In light of ongoing litigation and unpacking of the law, it’s wise to take caution when hiring outside contractors. “Meeting planners should continue to do their due diligence around all matters that may affect their meetings,” Sauter said. The intent of laws like AB5 is to protect misclassified workers, but the repercussions will go far beyond providing benefits to employees who were previously denied those protections. “It also introduces significant challenges for independent workers, for organizations leveraging their labor to deliver services, and ultimately, for end clients,” Hwang said.

As legislation works to catch up with evolving workforce preferences, event managers should take some initial steps and precautions to ensure they’re hiring contractors legally.

First, pay attention to the location of where services will be delivered. In some states, services performed at your location, even for a few hours, make the service provider your employee. Also pay attention to the regulations in the state where you plan to hire contractors. If you’re uncertain, Hwang recommends consulting government websites, industry forums and associations, workforce compliance platforms, and employment lawyers. “As there is no unified law across states today,” she said, “it is important that event planners research best and accepted practices of each location in which services will be delivered.”

Kluger recommends developing an independent contractor agreement to use for contractors hired for specific events, which “can be tailored to comply with the laws of the state in which the event will take place,” he said, “but for the moment, tracking the California or New Jersey model will likely work in most states.”

More bills codifying the difference between independent contractors and employees are likely to be introduced in other states, Kluger said. Savvy event managers should keep watching for changes, talk to their vendors about their use of independent contractors, and watch how any potential legislative changes might affect their budgets.

› Learn how California’s AB5 law may impact independent meeting planners in the state at talentwave.com/understanding-ab5-carve-outs.

› For a breakdown of the differences between AB5 and S4204, read this Fortune article: convn.org/gig-economy-bills.

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