Swiss-Cheese Stupidity

An exemption frenzy is likely next for New Jersey. In California, the process was—and still is—pure hell. A Q&A with Karen Anderson

Attorney Richard Reibstein, in his analysis of New Jersey’s proposed independent-contractor rule, says the next thing we’re likely to see here in the Garden State is the same kind of frenzy for exemptions that happened in California after its freelance-busting law was passed:

“[I]ndustry stakeholders, including ICs and trade organizations, are likely to seek industry-by-industry exemptions (as was done in California) through legislative action or a voter initiative such as California’s Prop 22.”

He’s right. In fact, we’ve already seen a kind of reverse version of exemption-seeking here in the Garden State. After New Jersey lawmakers failed to get a California-style freelance-busting law through in 2019-20, entire bills were written to try and shield real-estate agents and golf caddies from any future threats to independent-contractor status.

That “future threat” is now here, in the form of New Jersey’s proposed new independent-contractor rule—which the same attorney wrote “would not merely tilt the balance in favor of employee status and against legitimate ICs but rather lead to the elimination of all ICs in New Jersey.”

Hence, a ton of industries and professions now expected to seek exemptions from the New Jersey rule, in an attempt to punch hole after hole through it, turning the rule into a block of Swiss cheese.

All of which leads me to today’s Q&A with the phenomenal Karen Anderson.

Anderson is the founder of Freelancers Against AB5, the leading advocacy group in California that is still trying to figure out how to get that state’s freelance-busting law repealed. She and I both testified before Congress on this issue in 2023, and her testimony included this passage, some three years after the California law had gone into effect:

“To this day, despite the so-called exemptions for certain professions added in September 2020 via the cleanup bill AB2257, the law continues to wreak havoc on legitimate independent contractors and small-business owners. As it turns out, many of the exemptions come with caveats and fine print that make some exemptions nearly impossible to take advantage of. The convoluted language in the law also creates a chilling effect in which businesses don’t want to utilize independent contractors from California at all, even if there is a pathway to an exemption—because there are so many potential landmines.”

Others have also decried California’s Swiss-cheese exemption process, including members of the California Advisory Committee to the U.S. Commission on Civil Rights, who wrote:

“The evidence of the influence of the powerful union lobby on the seismic change in the classification paradigm is clear in the exemption process. The California legislature essentially outsourced the decision-making process for obtaining an exemption from AB5. The result was the politically powerful and those in industries not historical targets of organized labor were more readily able to obtain an exemption.”

And, California state Assemblyman Tri Ta—just three months ago—called for a U.S. Department of Justice investigation into California’s freelance-busting law and exemptions, specifically with regard to manicurists. That profession only received an exemption for several years, and it’s now expiring. Ta says more than 82% of manicurists are Vietnamese-American, and 85% are women, which is why he wants the U.S. Justice Department to launch an inquiry based on “discrimination”:

“Every Californian who believes in justice and equality under the law should be outraged by the unfair treatment of Vietnamese-Americans working in the beauty industry. We cannot wait for politicians in Sacramento to fix this issue. That’s why I’ve called on the U.S. Justice Department to intervene.”

I cannot stress enough how unfair and ridiculous this kind of exemption process could become in New Jersey, too. One of the biggest lawsuits against the state of California included this passage about the exemptions—two lines I’ve never forgotten, because they seemed so utterly ludicrous the first time I read them:

“There is no rhyme or reason to these nonsensical exemptions, and some are so ill-defined or entirely undefined that it is impossible to discern what they include or exclude. For example, some types of workers are excluded (e.g., a delivery truck driver delivering milk) while others performing substantively identical work are not excluded (e.g., a delivery truck driver delivering juice).”

Given that this same kind of Swiss-cheese stupidity appears poised to hit New Jersey next with a scrum for exemptions to the state’s proposed new independent-contractor rule, I asked Anderson to talk with me about California’s exemption process in-depth.

Here’s our conversation.

Q&A with Karen Anderson

Let’s start with a big-picture look at what happened with the exemption process for California’s ABC Test law, which is called Assembly Bill 5. What is an exemption, and how did the process of getting an exemption to AB5 work?

When AB5 was being crafted in 2019 by then-Assemblywoman Lorena Gonzalez, a Democrat from San Diego, lobbyists and advocates descended on her office to obtain exemptions for chosen professions. The bill’s ABC Test presumes that every worker is an employee unless the hiring entity can prove otherwise. Because very few can satisfy this draconian ABC Test, more than 65 occupations received exemptions that allowed them to bypass the first iteration of AB5.

Favored professions with clout at the Capitol included doctors, lawyers, accountants, veterinarians, dentists, real-estate agents, private investigators, engineers, travel agents, psychologists, architects, commercial fishermen and many more. The exemptions were controlled by a single lawmaker, and were capricious and arbitrary. Backroom dealing took place.

Unfortunately, the exemption process stifled any overarching opposition coalition from forming because it was every man for himself. The entire debacle was akin to the sinking of the Titanic, where everyone was frantically swimming for the nearest lifeboat—an exemption.

Many of the exemptions, however, are partial and come with fine print. The contracting relationship still has to satisfy a whole host of additional requirements contained within a specific exemption, creating a minefield of potential liability for the hiring entity. The onus is on the hiring entity to prove that the contracting relationship satisfies the ABC test, otherwise they risk massive fines and penalties for allegedly misclassifying their independent contractor.

Did legitimate independent contractors even realize, at the start, that they might need an exemption to continue earning a living the way they always had?

It turns out that the very first workers who protested the bill in early 2019 were truckers and strippers. Exotic dancers organized a raucous protest against Lorena Gonzalez in San Diego that can be viewed on YouTube:

Convoys of truckers drove by her office and through downtown Sacramento sounding their horns and displaying “No on AB5” signs on their trucks.

After the bill was signed into law by Governor Gavin Newsom on September 18, 2019, legitimate independent contractors were already pre-emptively being terminated by their clients because they would soon no longer be able to legally engage with them. Once the law went into effect on January 1, 2020, the floodgates opened.

Festivals shuttered, community theaters closed, language professionals and sign-language interpreters couldn’t work, real-estate appraisers lost business, healthcare professionals had to abandon their clients, and a Grammy Award-winning group had to disband. All of this and more took place months prior to the Covid lockdowns.

Thousands of horror stories came pouring into my Facebook group, Freelancers Against AB5, which has identified more than 600 occupations affected by AB5 and boasts 18,000 members.

So some professions did manage to get exemptions—but how are those exemptions problematic?

There is no blanket, one-size-fits-all solution to exempt legitimate independent contractors from the ABC Test because there are thousands of different professions with very specific business models that the lawmaker would have to address.

Many of the so-called exemptions come with up to 12 requirements that have to be met in order to take advantage of the exemption. The exemptions are grouped in categories: the Referral Agency exception; the Business-to-Business exception; the Professional Services exception; the Sound Recording exception; as well as exceptions for specified occupations. Each category is replete with niche, contradictory and/or vague language pertaining to specific professions. This not only creates confusion for employment attorneys and enforcers, but also has led to a slew of litigation that is still playing out in the courts to this day.

Legislators introduced amendment bills to exempt such professions as translators, pharmacists, licensed healthcare professionals, musicians and others, but all were tabled and tossed. Repeal-and-replace bills met the same fate.

It’s important to note that even if a certain profession has an exemption, AB5 still throws a wrench into their traditional contracting relationships. Architects might have an exemption, but they would be hard-pressed to hire an architectural renderer as a 1099 independent contractor without violating the ABC Test. Paralegals don’t have an exemption, therefore attorneys must be careful when bringing on a freelance paralegal for client-direct work. Wedding photographers have an exemption, but they can’t bring on a second shooter for the day because it would violate the control-and-direction caveat of their exemption.

Why do you think some professions got exemptions right out of the gate, but others did not?

Those industries and professions that received exemptions either had the financial backing to hire lobbyists, had trade organizations representing them or had some kind of personal access to the lawmaker.

Hundreds of professions fell through the cracks, either because they weren’t organized, couldn’t afford a lobbyist, couldn’t get an audience with the lawmaker or didn’t know about the bill. Freelance transcriptionists, for example, are now all but extinct in California because of AB5. A lot of them were seniors who, sadly, didn’t have the professional infrastructure to organize a response.

There were a few of examples of grassroots citizens who successfully obtained exemptions for their professions, such as licensed cosmetologists represented by two women who simply put their noses to the grindstone and somehow, against all odds, obtained exemptions.

After the ABC Test law went into effect, there was a cleanup bill passed less than a year later with even more exemptions. Again, only some professions got exemptions with that cleanup bill, too. How did that process work?

As soon as Assembly Bill 5 was enacted in January 2020, Assemblywoman Gonzalez began creating a cleanup bill to mop up some of the mess and to provide “clarity” to some of the language. This process involved lobbyists or grassroots advocates begging to meet with the lawmaker and plead their cases.

Musicians were the most vocal during this time, as AB5 prevented them from performing at restaurants, bars, breweries and other locations unless everyone in the band was put on payroll. A musicians’ advocacy group launched a petition signed by hundreds of thousands of people, and they became a major thorn in Gonzalez’s side. Those with the loudest voices shouting from the rubble received attention.

Governor Newsom signed the cleanup bill, AB2257, into law September 4, 2020. It came with an urgency clause so it could go into effect three months prior to when a law normally goes into effect at the beginning of the following year. I believe this was primarily to tamp down the bad optics prior to the statewide election in November 2020.

Although AB2257 attempted to clarify some of the existing exemptions and added a handful of new exemptions to the labor code, it is still as convoluted as ever and contains most of the provisions of the original iteration of AB5.

As a freelance writer, I’m most familiar with the exemption that freelance writers received at first. It didn’t work. Freelance writers I personally know—award-winning, truly great writers—still lost their income and clients. The state of California had to go back and try again so people could legally write and sell as many articles as they wanted to publishers who wished to buy the articles from them.

Which, of course, is insane. It’s what led us to create the advocacy group Fight For Freelancers here in New Jersey, to stop our state from attacking us the way California had just hurt our colleagues.

Was the profession of freelance writing an isolated case in California? Did other professions receive similarly half-baked exemptions?

Writers also made a big stink on social media. Even though freelance writers (as well as cartoonists, editors and photographers) had a partial exemption in the Professional Services category of exceptions, it came with the caveat that they could not produce more than 35 submissions per outlet per year, otherwise they would have to be made employees. Prominent weekly columnists and cartoonists at Forbes, The San Francisco Chronicle and the Los Angeles Times were unceremoniously dumped by their publications. Freelance photographers or people who wrote daily social media posts were also in the crosshairs, and there was no definition a “submission” or an “outlet” in the law.

The American Society of Journalists and Authors filed a lawsuit asserting that the submissions cap was unconstitutional.

I remember that lawsuit. I was the lead author on the amicus brief that Fight For Freelancers filed in support of it with the U.S. Supreme Court.

Crazy as it sounds, a lawyer had to tell me what amici meant, because I didn’t realize we were supposed to get co-signers after I wrote it. We ended up getting a significant number of amici after asking around, including the Society of Professional Journalists and PEN America. Our U.S. Supreme Court brief represented more than 275,000 Americans urging the court to protect independent contractors.

Which, of course, didn’t make Assemblywoman Gonzalez happy. All the noise we made created pressure on her to fix the problem for writers in particular.

Gonzalez ultimately removed the 35-submission cap in the cleanup bill. Writers still have seven requirements in their exemption that have to be met, including that they cannot replace an employee doing the same work at the same volume.

It's a myth, however, that more than 100 professions are ultimately exempt from AB5/AB2257, and that the problem is solved for most freelancers. As I mentioned before, a lot of these exemptions are smoke and mirrors. They are impossible to take advantage of.

Another example is tutors, who supposedly have an exemption, but it comes with 11 requirements that most online tutoring companies cannot meet. And just because you have an exemption that allows you to bypass the ABC Test, it doesn’t mean you can automatically be an independent contractor in California, because the traditional Borello worker classification test, established in 1989, is still in place and must ultimately be satisfied.

And I would be remiss if I didn’t mention Proposition 22, a ballot initiative passed in November 2020 that not only exempts rideshare and app-based delivery drivers from the ABC Test of Assembly Bill 5, but also from the Borello test as well. The industry spent more than $200 million to get Prop 22 passed, basically writing their own labor law.

Members of the California Advisory Commission to the U.S. Commission on Civil Rights recently released a report that stated: “The evidence of the influence of the powerful union lobby on the seismic change in the classification paradigm is clear in the exemption process. The California legislature essentially outsourced the decision-making process for obtaining an exemption from AB5. The result was the politically powerful and those in industries not historical targets of organized labor were more readily able to obtain an exemption.”

Does that ring true to you? What did you actually see happen that involved unionists and the exemption process?

I was intimately involved in bringing our AB5 stories to the California Advisory Committee to the U.S. Commission on Civil Rights. Our testimony was heard during a series of public panel discussions held in 2022 about the effects of AB5 on marginalized communities including the disabled, family caregivers and the chronically ill. Even rape victims may lack access to proper medical evidentiary exams conducted by forensic nurses, especially at rural hospitals that can’t afford to hire an independent forensic nurse as a full-time employee when their services are only needed sporadically.

The usual suspects from the opposition also testified, including Gonzalez. Contrary to her promise to continue to fix what is broken in AB5, she left the Assembly in early 2022 and became the head of California Labor Federation, AFL-CIO, which represents 1,300 unions and more than 2 million members in the state.

Her new job is notable because there was an AB5 “exemption form” with AFL-CIO letterhead on it circulating around the Capitol in 2019 prior to the passage of AB5.

Given everything you experienced in California, do you think it’s possible—in an ideal world with honest regulators—to create meaningful exemptions to this ABC Test for legitimate independent contractors?

I’m not sure that anything meaningful can come from the exemption process other than a Frankenstein patchwork of mishmash contradictions and dubious legal language.

What’s absolutely predictable are costly lawsuits, never-ending litigation, lost livelihoods, careers destroyed and an increase in unemployment, per a recent study about AB5 by the Mercatus Center. The inevitable ripple effects harm mom-and pop enterprises, small-business owners, creative professionals, the arts, community theaters, nonprofits, churches and essential service providers, as well as seniors, students, women, stay-at-home moms and self-employed entrepreneurs.

In one of the many lawsuits against AB5, a brief glimmer of hope for our side came in the form of a Ninth Circuit ruling in March 2023 (Olson v. the State of California) that stated it is plausible that the exemptions of AB5 violate the Equal Protection Clause of the 14th Amendment by picking winners and losers. The court also concluded that Gonzalez engaged in backroom dealing, and that her crafting of the bill bordered on “corruption, pure spite and naked favoritism.” They also wrote that she exhibited blatant animus toward Uber and Postmates while granting exemptions to occupations in similarly situated app platforms like certain TaskRabbit jobs or app-based dog walking services. The three-judge panel cited Gonzalez by name 14 times in the decision, but alas, decision was short lived, because it was overturned by an en banc panel of the Ninth Circuit in 2024.

What else do you think New Jersey’s independent contractors should know about what happened in California, as New Jersey begins to accept public comments about its own proposed ABC Test rule?

Costly, endless litigation and chaos will be the result should New Jersey’s ABC Test rule be deployed.

In California, it is not speculation what can happen when the strict ABC Test is enacted against the entire independent workforce. We are the canaries in the coal mine. So many independent professionals lost their thriving careers and livelihoods, and the damage continues to this day. As I wrote in the Orange County Register, even with exemptions, AB5 is rotten to the core.

New Jersey should think twice before bringing California’s chaos to that state.