AB 2150 creates a statutory exception to the Dynamex/Section 2775 ABC test for relationships the bill characterizes as bona fide business-to-business (B2B) contracts. If a service provider is a sole proprietor or an entity (partnership, LLC, LLP, corporation) and the contracting business demonstrates that a 12-point checklist is satisfied, the court or agency must evaluate classification under the older Borello multifactor test rather than the presumptive ABC standard.
The change reallocates classification risk and imposes documentation and conduct requirements on both contracting businesses and service providers. It also clarifies that where a worker is not acting as a business entity, the ABC test under Section 2775 still governs, and it preserves existing rights under Section 2810.3.
For compliance teams and contracting officers, the bill replaces a binary ABC inquiry with a documentary and factual showing that will drive contract drafting, onboarding, and audit practices.
At a Glance
What It Does
The bill bars application of Section 2775 (Dynamex’s ABC test) to a covered B2B relationship when the hiring business proves twelve enumerated criteria and a written agreement describing payment and terms. When the criteria are met, courts apply Borello’s multifactor balancing test instead. If the contracting business fails to demonstrate every criterion, the ABC test remains available.
Who It Affects
Companies that contract with independent sole proprietors or business entities — especially professional services firms, consultants, staffing firms, and public agencies — plus the independent businesses they hire. It also affects HR, procurement, and legal teams that must collect and preserve documentary evidence to satisfy the statutory checklist.
Why It Matters
The bill shifts classification enforcement from a presumptive, bright-line ABC test to a facts-and-records-driven analysis when parties meet the statutory checklist, reducing automatic employee-status findings for many B2B arrangements. That change increases the value of contract terms, operational independence, and recordkeeping as defenses in disputes.
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What This Bill Actually Does
AB 2150 adds Section 2776 to the Labor Code to create a B2B exception to the Dynamex-derived ABC test. Under the new section, a person or entity that provides services as a sole proprietor or as a formally organized business can be treated under Borello if the hiring (contracting) business demonstrates that the relationship meets a list of twelve objective criteria.
The bill makes the contracting business the party that must show compliance with those criteria; mere labeling in a contract is not enough without supporting facts.
The statutory criteria bundle together control-related facts (freedom from control and direction), commercial indicia (separate business location, advertising, ability to contract with others, negotiation of rates), operational independence (providing own tools, setting hours and location consistent with the work), formalities (written contract specifying payment and payment due date, required business licenses or tax registration where applicable), and scope limits (not performing work that requires a Contractors’ State License Board license). One notable wrinkle: if the provider’s employees perform the contracted services solely under the business provider’s name, certain residency-of-work rules do not defeat the B2B finding.Where two bona fide businesses contract, AB 2150 still preserves Section 2775 for determinations about individual workers who are not themselves organized as business entities — so a worker who is an employee of the service-provider business remains potentially protected by the ABC test.
The bill also explicitly says it does not change rights under Section 2810.3, leaving whatever pay-transparency or contractor-related protections that section contains intact.Operationally, the statute converts what used to be an almost automatic ABC presumption in ambiguous arrangements into a documentary defense: contracting entities will need written contracts with clear payment terms, evidence of the provider’s independent business activities (invoices, advertising, client lists), licenses or registrations when required, and factual proof that the provider controls how and when it performs work. Compliance teams should update contract templates, procurement checklists, onboarding packets, and evidence-retention policies if they intend to rely on this safe harbor.
The Five Things You Need to Know
The bill creates a statutory safe harbor: if a contracting business proves that a service provider (sole proprietor or business entity) meets all 12 enumerated criteria, courts will apply Borello rather than the ABC test in Section 2775.
The contract must be in writing and explicitly state payment amount (or rate) and the payment due date; lack of a written contract or missing payment terms negates the safe harbor.
Where local law requires a business license or tax registration, the provider must hold that license/registration for the safe harbor to apply.
The statute excludes work that requires a license from the Contractors’ State License Board; that category remains outside the B2B safe harbor.
If the parties are two bona fide businesses, the ABC test (Section 2775) still governs classification of individual workers who are not organized as business entities.
Section-by-Section Breakdown
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B2B safe harbor and the twelve statutory criteria
This paragraph creates the core rule: Dynamex/Section 2775 does not apply when a contracting business proves that the service provider is a bona fide business and satisfies twelve specific factors. Practically, the provision converts factual indicia — control, commercial presence, ability to contract with others, provision of tools, negotiation of rates, written payment terms, and licensing where required — into a checklist that a hiring entity must document. Legal teams should note that the statute phrases these as conjunctive requirements: failing any one element means the Borello safe harbor is not established.
Direct service to contracting business and employee-performance exception
This clause requires that the business service provider perform services for the contracting business itself rather than for that business’s customers, unless the provider’s own employees are the ones delivering services under the provider’s name and the provider regularly contracts with other businesses. That carve-out recognizes common subcontracting where a vendor supplies staffed teams while trying to prevent sham arrangements where an individual is placed in a client-facing role but is treated as a separate business for classification purposes.
Individuals not organized as businesses remain under Section 2775
When two businesses contract and one or both employ workers who are individuals not acting as business entities, this paragraph preserves Section 2775 for determining whether those individual workers are employees. In short, the bill protects the existing ABC protections for workers who have not formed a business entity, limiting the safe harbor to relationships where the provider is a bona fide business.
Preservation of Section 2810.3 rights
This short clause ensures nothing in the new safe-harbor provision erases or supersedes rights established under Section 2810.3. That means any contractor-related protections, disclosures, or pay rules that Section 2810.3 requires remain in force even when the Borello standard applies under the new statute.
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Who Benefits
- Contracting businesses (procurement, HR, general counsel): They gain a pathway to avoid automatic employee-status findings under the ABC test by documenting compliance with the twelve criteria, reducing classification risk for many vendor arrangements.
- Established professional-service vendors and small business entities (LLCs, corporations, partnerships): Firms that operate with independent-business hallmarks (advertising, multiple clients, separate premises) will find it easier to preserve independent-contractor status when they have written contracts and business formalities in place.
- Public agencies and quasi-public entities that purchase services: These entities can rely on the same documentary defense as private contractors when structuring vendor relationships, potentially simplifying procurement for specialized contractors.
Who Bears the Cost
- Small sole proprietors and single-person providers who cannot demonstrate the checklist (no separate business location, limited marketing, or inability to negotiate rates): These workers risk losing access to the safe harbor and face higher classification vulnerability or pressure to formalize into a business entity.
- Contracting businesses required to perform due diligence: Procurement and legal teams must invest in contract revisions, evidence collection, and ongoing audits to establish and maintain the safe harbor, increasing administrative compliance costs.
- Workers who are covertly treated as businesses (sham incorporations): The statute creates incentives for employers to encourage incorporation; misclassified workers who do not meet the economic realities of independent business may lose protections if courts accept form over substance.
Key Issues
The Core Tension
The central tension is between enabling commercial contracting flexibility and protecting workers: the bill favors business autonomy and contract certainty for documented B2B relationships, but in doing so it increases the risk that economically dependent workers will be pushed into business forms or that employers will rely on form over substance — resolving one problem (overbroad ABC findings) by potentially creating another (expanded opportunities for misclassification).
The bill trades a bright-line employee presumption for a documentary, multifactor defense. That reduces automatic misclassification risk for firms that can comply with formalities but raises distinct risks: parties can structure or label relationships to fit the checklist even where the economic reality points to employment.
Evidence questions will dominate litigation — how courts weigh advertising, a provider’s clientele, or the practical control exerted by the hiring entity will be decisive, but the bill does not set standards for evidentiary weight.
Ambiguities in key terms—what counts as ‘advertising and holding out,’ what is a ‘business location’ when home-based providers are common, and how to measure the ‘ability to negotiate rates’ in markets with standard pricing—create room for disputes. The statute requires local-business licenses where the jurisdiction requires them, which introduces geographic variation in applicability and may disadvantage providers in short-term or cross-jurisdictional engagements.
Finally, although the statute carves out Contractors’ State License Board work, subcontracting chains and composite services may generate hard line-drawing problems that will produce litigation and administrative questions.
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