Are Court Reporters Exempted by AB 5 under the B2B clause?
Can court reporters avail themselves of the Business to Business (B2B) exemption in AB 5? Two attorneys weigh in below and seem to think so. What follows is a deep dive into the possible B2B exemption afforded in AB 5 and how it may apply to the court reporting community.
Given that AB 5 contains this clause in Section 2 (e) (1) (B):
The business service provider is providing services directly to the contracting business rather than to customers of the contracting business.
Below are two attorney's concurring opinions.
OPINION #1 - ED HOWARD, ESQ. | Deposition Reporters Association
Does the relationship between court reporting firms and court reporters satisfy this clause? Yes, I believe it does. What follows is a paraphrase from a conversation with Ed Howard, Esq. attorney and lobbyist for the Deposition Reporters Association. DRA has been extremely proactive in educating the court reporting community about AB 5 (amongst many other things). Spoiler Alert: I am a long time member of DRA and past Board of Director. Additionally, I did a podcast wherein I interview Ed Howard about AB 5. Listen
The answer is based on how court reporting matching making firms operate.
First, a firm owner gets an order from a lawyer: I need a reporter to show up on this date and time. The firm owner goes out into the world and finds an independent contractor reporter. The reporter shows up at the behest of the court reporting firm. They show up. They do the depo.
A whole host of things happen after that, but commonly, that's it. The reporter hands the transcript over to the firm. And then everything is handled by the firm subsequently after that. The firm pays the reporter. The reporter (most often) has no relationship after that at all with the lawyer for whom they took the depo. If all of that is true, then all of the services in the above scenario -- in Ed's opinion -- were to the court reporting firm and not to the lawyer.
The firm hired the reporter. The firm paid the reporter. The firm told the reporter where the work was. The reporter provided the service for which the firm contracted. The lawyer never contracted with the reporter for the service. The firm contracted with the lawyer for the service. The reporter provides the service to the firm in fulfillment of the firm's contract with the lawyer. And to the extent that that's the arrangement -- Ed Howard thinks court reporter's fall under the B2B exemption allowed in AB 5.
The reporter provides the service to the firm in fulfillment of the firm's contract with the lawyer. And to the extent that that's the arrangement -- Ed Howard thinks court reporter's fall under the B2B exemption allowed in AB 5.
[NOTE: There are other requirements in addition to the above that need to be met such as being a sole proprietor, S-Corp, LLC, et cetera. The above is simply a discussion of Section 2 (e) (1) (B).]
OPINION #2 - RICHARD L. MANFORD, Attorney at Law | email@example.com
New Labor Code Section 2750.3(a)(1) (eff. 01.01.20) codifies the CA Supreme Court’s Dynamex decision’s ABC test to determine employee/independent contractor status. Whereas the Dynamex decision created no exemptions or exceptions allowing for Borello analysis, the new code section section goes on to exempt designated occupations, and provides for application of the Borello test, rather than the ABC test, to specified business relationships. Of significance to court reporting firms is subdivision (e) which states that subdivision (a) and Dynamex
“ . . . do not apply to a bona fide business-to-business contracting relationship, as defined below, under the following conditions: (1) If a ‘business service provider’ contracts to provide services to another such business (‘contracting business’), the determination of employee or independent contractor status of the business services provider shall be governed by Borello, if the contracting business demonstrates that all of the following  criteria are satisfied:”
Most reporting firms can without significant difficulty satisfy eleven of those criteria for CSRs they hire. The focus here is on subparagraph (1)(B) of subdivision (e) which provides that “[t]he business service provider is providing services directly to the contracting business rather than to customers of the contracting business.”
Most reporting firms can without significant difficulty satisfy eleven of those criteria for CSRs they hire. The focus here is on subparagraph (1)(B) of subdivision (e) which provides that “[t]he business service provider is providing services directly to the contracting business rather than to customers of the contracting business.” For the purpose of the following discussion, I refer to “business service provider” as “CSR, “contracting business” as “reporting firm” or “firm,” and “customers of the contracting business” as “lawyer/client.” Stated anew, then, the CSR is providing services directly to the reporting firm rather than to the firm’s lawyer/client.
The CSR performs two basic functions: (1) Swearing of a deponent or witness, and creating through machine shorthand notes a verbatim record of a deposition proceeding or of a trial court proceeding; and (2), if ordered by a party, transcription of the shorthand notes into a verbatim written English transcript submitted by the CSR to the reporting firm.
The reporting firm performs a variety of functions, none of which replaces or duplicates a CSR function: Recruits, obtains, and retains lawyer/clients who wish to contract with reporting firm for CSR services; locates an available CSR to satisfy the lawyer/client’s needs, negotiates the rate(s) the reporting firm will pay the CSR for services; creates the written contract between reporting firm and CSR; if lawyer/client orders a transcript, receives the finished/certified transcript from the CSR; duplicates same for non-client copy purchasers; duplicates exhibits received either from CSR or lawyer/client; transmits the O + 1 and copy transcripts to lawyer/client and non-client purchasers, respectively, under the firm's name or logo; invoices each for services and products rendered; pays the CSR for services and product provided; and receives from lawyer/client payment for CSR services and reporting firm’s transcript, and receives from non-client purchasers payment for the firm’s product provided.
The CSR’s function is actually hybrid: Function (1) is a pure service; and (2) a transcript is a product although it requires predecessor function (1) service to create it. CSR’s function (1) is of no value to reporting firm’s lawyer/client unless lawyer thereafter obtains a transcript from the firm, and the function (2) transcript is submitted by CSR to reporting firm which, in turn, provides it to lawyer/client with a bill. Thus, CSR has provided neither a service nor a product to lawyer/client; those are provided by CSR directly to reporting firm between whom the contract exists.
As and for explanation, the CSR’s function (1) is of no value to lawyer/client. It is the transcript that has value. Lawyer/client can use it to prepare a case for summary judgment (which requires citations to depo transcripts) or trial, provide it to experts to establish facts upon which the expert will rely to formulate opinions, to impeach trial testimony by a deponent, read an opposing party’s deposition testimony directly into the record at trial, and, in the case of a legally unavailable witness, read that witness’s deposition testimony directly into the trial record. This service, i.e., product, is provided to lawyer/client by reporting firm, not by the CSR.
During function (1), the CSR may, at a lawyer’s request, read back from CSR’s shorthand notes a question and/or answer, and/or may provide realtime rough transcription of Q & A for an interrogating lawyer. At best, these are collateral services provided to lawyer/client. This service in itself has no evidentiary value; it is merely a facilitator in the lawyer’s effort to create a record of testimony which later becomes a transcript that does have evidentiary value. Simply because lawyer/client may receive from CSR a collateral service should not detract from, in the words of the statute, the provision of CSR’s services directly to reporting firm. The statute does not say providing services directly and exclusively to reporting firm. In my view, as long as the CSR’s service/product is provided directly to reporting firm, the fact that lawyer/client receives a minor collateral service should not defeat the statute’s subdivision (e)(1)(B) which requires that CSR provide services directly to reporting firm.
The same principle should apply to same-day and overnight rough draft transcripts of deposition testimony and trial court testimony which, in some cases, may be provided by CSR directly to lawyer/client due to lateness of the hour. These transcripts are not certified, have no evidentiary value, cannot be cited, and cannot be used to rebut or contradict a final certified transcript. (Code Civ. Proc., §§ 273, 2025.540(b).)
A different scenario arises when lawyer/client, in anticipation of or during trial, requests a daily transcript (better known as overnight expedite) or one or more excerpts of witness testimony. Both are certified and final. Depending on the time of night CSR completes these kinds of transcripts, reporting firm may not have staff available to process transcripts, and they are delivered by CSR directly to lawyer/client that night or the next morning. Do these circumstances defeat the statute’s subdivision (e)(1)(B) and make CSR the reporting firm’s employee? At worst, the CSR should be an employee not for the entire trial, but only for those days of the job assignment during which an overnight expedite or excerpt is directly delivered to the lawyer/client. It would be shocking to think that this limited circumstance could transmute a CSR into a firm employee for all past and future depositions.
First, the overall relationship between CSR and reporting firm should properly be examined. Many, many more depos are taken by CSRs than trials are reported. It is likely that any CSR has worked for a particular reporting firm on numerous prior occasions. Thus, the high percentage of depositions reported, with the CSR’s service/product provided directly to reporting firm, should far exceed the very few occasions where CSR delivers certified overnight expedites or excerpts directly to lawyer/client during trial. Again, because subdivision (e)(1)(B) does not expressly require that CSR’s services be delivered exclusively to reporting firm, the prior relationship between CSR and reporting firm should militate in favor of compliance with subdivision (e)(1)(B), especially where the other eleven criteria are satisfied.
Second, and even if the circumstances of the relationship between CSR and reporting firm do not satisfy subdivision (e)(1)(B), new Labor Code Section 2750.3(a)(3) contains a vague provision which appears to cover a circumstance where a particular hiring relationship makes application of the ABC test questionable. Subdivision (a)(3) states:
“If a court of law rules that the three-part test in paragraph (1) cannot be applied to a particular context based on grounds other than an express exception to employment status as provided under paragraph (2), then the determination of employee or independent contractor status in that context shall instead be governed by the California Supreme Court’s decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello).”
Of course, this provision, in order to ever reach court determination, presumes that the Labor Commissioner has cited a reporting firm for a violation of section 2750.3(a)(1), an administrative hearing has been held with a decision against reporting firm, and reporting firm files a petition for administrative mandate under Code of Civil Procedure Section 1094.5. Alternatively, the issue could reach a court through a direct action for injunctive relief against a reporting firm by the Attorney General or a city attorney under section 2750.3(j) alleging that a reporting firm has misclassified an employee as an independent contractor. Subdivision (a)(3) is likely to generate a significant amount of litigation. What is “a particular context” that disallows application of the ABC test? There must be thousands of hiring relationships which do not neatly fit into one of the section’s subdivision exceptions to the ABC test.
If all of the above fails, there may be a fallback position: Under the B part of the ABC test, the CSR’s functions (1) and (2) arguably are outside of a reporting firm’s usual course of business. Reporting firms do not swear witnesses, do not create through machine shorthand notes a verbatim record of a deposition or a trial court proceeding, and do not transcribe the shorthand notes into a verbatim written transcript. The firm’s usual course of business is to match an available CSR with a lawyer/client who needs CSR functions (1) and (2), a match which a CSR is free to reject. Similarly, CSRs do not duplicate or replace any of a reporting firm’s functions as described above. Of course, it will only be through future litigation whether the courts will accept these differences and find compliance with part B of ABC, or treat them as mere distinctions with no meaningful difference.
If all of the above fails, there may be a fallback position: Under the B part of the ABC test, the CSR’s functions (1) and (2) arguably are outside of a reporting firm’s usual course of business.
Mention is also made of section 2750.3, subdivision (e)(1)(K): “Consistent with the nature of the work, the business service provider can set its own hours and location of work.” The “nature” of the CSR’s work, i.e., function (1), requires that the CSR appear at the time and place designated by reporting firm which simply passes on to CSR the time and place requirements of the firm’s lawyer/client. This condition is no different from a law firm directly hiring a CSR, and lawyers as hiring entities are expressly subject only to Borello analysis. Thus, the nature of CSR’s work is not consistent with the CSR setting CSR’s own hours and location of work. Consequently, the inability of the CSR to set CSR’s own hours and location of work should not disqualify CSR from subdivision (e)(1)(K)’s criterion for application of the Borello test.
In the final analysis, it is each reporting firm’s decision whether to continue to treat and classify CSRs who provide services/products as independent contractors, or roll over to the politicians in Sacramento without a fight. If the former, it would be advisable for firms to develop a written comprehensive contract defining company and CSR obligations and responsibilities, ensuring that the twelve criteria mentioned in subdivision (e)(1) for independent contractor classification are covered in the contractual terms.
For a reporting firm which may currently be in litigation with a CSR who claims to be or have been an employee under the Supreme Court’s Dynamex ABC test, section 2750.3, subdivision (i)(2) may offer glimmer of salvation. It provides that
“[i]nsofar as application of subdivisions (b), (c), (d), (e), (f), (g), and (h) of this section would relieve an employer from liability, those subdivisions shall apply retroactively to existing claims and actions to the maximum extent permitted by law.” (Bold italics added.)
However, given past practices that the only writings passing between most reporting firms and CSRs are emails and job assignment sheets, there may be difficulty in satisfying section 2750.3, subdivision (e)(1)(C)’s requirement that “[t]he contract with the business service provider is in writing.” At a bare minimum, a contract requires offer, acceptance, and consideration. I think I have never seen a reporting firm’s job assignment sheet which states the rate(s) at which the CSR will be compensated. However, predecessor emails and a CSR rate sheet may satisfy the consideration requirement.
Thursday, October 24, 2019