California’s professional services exemption doesn’t make a freelancer a contractor. It changes the test. Under Labor Code section 2778(a), if a business proves six factors for a contract covering listed services such as marketing, graphic design, or freelance writing, the ABC test in section 2775 doesn’t apply, and worker status “shall be governed by Borello.” The business still has to win under Borello’s multifactor test. Many misclassification defenses fail because the company stopped at the exemption.
What does section 2778 do?
It swaps tests for certain professions. The ABC test in Labor Code section 2775(b)(1) presumes a worker is an employee unless the hiring entity shows the worker is free from control, does work “outside the usual course of the hiring entity’s business,” and is customarily engaged in an independent business. That middle prong defeats most contractor arrangements where the freelancer does the same kind of work the company sells.
Section 2778(a) says section 2775 and Dynamex “do not apply to a contract for ‘professional services’” when the hiring entity “demonstrates that all of the following factors are satisfied.” Section 2775 defines Borello as the Supreme Court of California’s decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, which weighs control and a list of secondary factors.
What are the six factors?
The burden is on the business, and all six must be met. Under section 2778(a), the individual must keep a separate business location, which can be a residence, and must hold any required business license or tax registration plus any professional license.
The statute also requires “the ability to set or negotiate their own rates,” and, outside project deadlines and reasonable business hours, “the ability to set the individual’s own hours.” The worker must be “customarily engaged in the same type of work” for others or hold out to other customers. And the worker must “customarily and regularly” exercise “discretion and independent judgment.”
Rate-setting and independent judgment are where most disputes land. A designer paid a fixed hourly rate set by the company, who executes tasks from a detailed brief, has trouble with both.
Which services qualify?
A specific list in subdivision (b)(2). It includes marketing, if the work is “original and creative in character,” and human resources administration, if the work is “predominantly intellectual and varied in character.” It also lists graphic design, grant writing, fine artists, enrolled agents, payment processing agents, appraisers, and registered professional foresters.
Several categories come with extra conditions. Freelance writers, translators, editors, copy editors, illustrators, and newspaper cartoonists qualify only under “a written contract that specifies the rate of pay, intellectual property rights, and obligation to pay by a defined time.” The worker also can’t be “directly replacing an employee who performed the same work at the same volume,” can’t primarily work at the hiring entity’s location, and can’t be restricted from working for others. Photographers and videographers have similar conditions, and motion picture work is carved out.
Licensed estheticians, electrologists, manicurists, barbers, and cosmetologists have their own five conditions, including setting their own rates, being paid directly by clients, and keeping their own book of business. In the version of the statute effective January 1, 2026, that subparagraph becomes inoperative for manicurists on January 1, 2029.
Why does Borello still matter?
Because the exemption only gets the business to a different test. Borello focuses on the right to control the manner and means of the work, then weighs secondary factors such as the skill required, who supplies tools, the method of payment, and whether the work is part of the company’s regular business.
A company that meets all six factors but treats the freelancer like staff, with set hours in practice, company equipment, ongoing open-ended work, and supervision, can still lose under Borello. The written contract helps, but courts look at how the relationship works in fact.
What exposure does misclassification create?
Wage and hour liability, plus penalties and taxes. A misclassified worker can claim overtime, meal and rest premiums, expense reimbursement, and wage statement penalties, often as a class or PAGA claim. The firm’s post on the ABC test and independent contractor misclassification covers that exposure in more detail.
Professional services exemption at a glance
| Step | Question | Source |
|---|---|---|
| 1 | Is the service on the professional services list? | Lab. Code 2778(b)(2) |
| 2 | Are the extra category conditions met, such as a written contract? | Lab. Code 2778(b)(2) |
| 3 | Can the business prove all six factors? | Lab. Code 2778(a) |
| 4 | Does the worker qualify as a contractor under Borello? | Lab. Code 2775(a)(2), 2778(a) |
| If any step fails | ABC test applies | Lab. Code 2775(b)(1) |
When a freelancer’s status is challenged
- Preserve the contracts, invoices, statements of work, communications about rates and deadlines, and records of who supplied equipment.
- Calendar the deadline on the demand, PAGA notice, EDD inquiry, or complaint, and check for an arbitration clause and EPLI coverage for misclassification claims.
- Identify the managers who assigned and reviewed the freelancer’s work, and avoid ending the relationship abruptly in response to the claim.
- Pull proof of each factor, including the freelancer’s business license, website or other clients, and any rate negotiation.
- Have counsel test the relationship under both the exemption and Borello before responding.
The firm’s page on misclassification defense for California businesses explains how it handles worker status claims.
Professional services questions from businesses
Does a freelancer’s LLC change the analysis?
Not by itself. Section 2778(b)(1) says an “individual” includes someone “providing services as a sole proprietor or other business entity.” The six factors and Borello still apply. A separate business-to-business exemption in section 2776 has its own requirements.
Is a social media manager doing marketing?
Possibly. The marketing category requires work that’s “original and creative in character” and depends “primarily on the invention, imagination, or talent of the individual.” Posting company-written content on a fixed schedule looks less like that than designing and running original campaigns.
Can a former employee come back as a freelance writer?
Be careful. For writers, editors, and several other listed categories, the statute excludes someone “directly replacing an employee who performed the same work at the same volume.” A laid-off employee rehired as a contractor to do the same job is a common source of claims.
Does the exemption apply to unemployment insurance?
Section 2775(b)(1) applies the ABC test for the Labor Code, the Unemployment Insurance Code, and the wage orders. Exemptions in this article generally affect those determinations too, but EDD audits have their own procedures and should be handled on their own track.
If a freelancer claims to be your employee
If your company has received a demand, PAGA notice, or lawsuit claiming a marketing, design, writing, or other freelancer was misclassified, the contract terms and how the work was actually managed usually shape the defense. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving independent contractor misclassification. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Labor Code sections 2775 and 2778.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.