Bill to codify Dynamex, like the court ruling itself, is an overreach

THE NEUTRAL CORNER

Last year, the California Supreme Court's opinion in Dynamex Operations West, Inc. v. Superior Court established a new three-pronged test, simply dubbed the "ABC test," to determine whether a worker qualifies as an employee or an independent contractor. Of course, these labels matter because employees are eligible for rights and benefits that independent contractors are not.

Under the ABC test, a worker can only qualify as an independent contract if the worker is:

A: Free from the "control and direction'" of the employer;

B: Performing work that is "outside the course" of the employer's regular business; and

C: Engaged in an independently established trade, occupation, or business of the same nature as the work performed by the hiring company.

The ruling was controversial from the moment it was issued. Then, the 9th U.S. Circuit Court of Appeals held last month in Vazquez v. Jan Pro Franchising that, despite the uncontroverted fact that the ABC test is new, it should apply retroactively.

Worker advocates hailed both decisions while, judging from the number of webinars and blog posts addressing these issues, the business community is in a panic. Seeking to capitalize on the momentum, Assemblywoman Lorena Gonzales (D-San Diego) wrote and introduced Assembly Bill 5 at the end of last year, which would codify the Supreme Court's ABC test and apply in contexts beyond just claims for violation of the IWC Wage Orders to which Dynamex was limited.

In March, the California Labor Federation published a piece titled "5 Reasons the CA Legislature Must Say Yes on AB 5." According to the CLF, the reasons are:

1. "All workers deserve basic job protections";

2. "Taxpayers are on the hook when corporations cheat workers";

3. "The bill provides certainty and clarity for workers and employers";

4. "If you are truly your own boss, AB 5 doesn't apply"; and

5. "The future of work starts now -- workers need and deserve dignity and respect on the job."

As a neutral, I don't have any professional stake in whether the bill passes. But I have not seen anything specifically responding to the CLF piece so, in the interest of balance; I offer the following for consideration in response to the five reasons proffered by the CLF.

1. "Basic Job Protections" Must Coexist with Flexibility

Today, 36% of American workers are classified as freelance or independent contractors. In California, that adds up to more than 2 million people. And last fall, Forbes reported an 8.1% increase in the number of independent workers over the previous three years. If this trend continues, experts predict that more than 50% of the U.S. workforce will be freelancing by 2027.

What this shows is a growing number of American's who choose to be independent workers. They understand that freelancing and independent contract work does not come with health and retirement benefits -- and they're OK with that. Not only are they OK with it, they prefer it that way. The gig economy affords the opportunity for people to design their work schedule around their life, not the other way around.

2. Using Independent Contractors Is Not "Cheating Workers"

Of course there are examples of companies incorrectly characterizing employees as independent contractors to avoid paying benefits and taxes. The solution to this problem, however, is not a bill like AB 5, which will adversely affect all types of businesses whose workers are truly independent. The second element of the ABC test, that the work performed is outside the course of the employer's regular business, effectively means "gig economy" workers must be employees. While this requirement may not be the "job killer" the business community predicts, it will certainly adversely affect the growth of such businesses.

How is it cheating a worker for a startup food company to employ independent contractors to perform in-store demonstrations or staff tasting events? The workers get to choose whether they want to do the work and, in the case of the store demonstrations, can schedule them whenever their schedule permits. For a startup or struggling small business, paying for health insurance, workers' compensation, and payroll tax for these workers can determine whether the company can survive. How is cheating the worker for a solo practitioner to hire a freelance paralegal to help prepare for an upcoming trial? In fact, in this example, the freelancer is in a position to negotiate a higher wage rate because the employing attorney has no associated benefit or tax costs.

The CLF makes it seem like only "big" corporations use independent contractors. To be sure, there have been infamous examples of companies like Microsoft, which had "temporary contractors" working alongside employees for years. And, the company paid $97 million to settle the Vizcaino case 20 years ago. That example markedly reduced the widespread mischaracterization of employees as independent contractors. Most independent contractors, however, are not used by "big" corporations, but by small businesses. If a worker voluntarily enters into an independent contractor agreement because doing so meets that worker's needs, who, exactly, is being cheated?

3. The Bill Already Includes Many Exemptions

CLF asserts AB 5 provides "certainty and clarity" for workers. Maybe. Maybe not. But certainty and clarity at the expense of flexibility and consistency is nothing to cheer. Last month, more than 50 organizations signed a letter pleading with California lawmakers to amend AB 5 to broaden the definition of independent contractor. The bill already exempts professionals such as doctors, engineers and architects. But why are those professionals entitled to an exemption? What about other professionals with advanced degrees and licensing requirements (e.g., court reporters, scientists, therapists, etc.)? What about arbitrators and mediators who are on provider panels (like JAMS and AAA) whose sole business in providing neutrals? Shouldn't I now be an employee of all the panels on which I serve as an independent contractor? There does not seem to be any rationale for granting some exemptions and not others. The fact that the exemptions track the IWC wage orders is a rationale akin to "that's the way it's always been."

4. Gig Economy Workers Are Not Under Employer Control

CLF claims AB 5 will not apply "if you are truly your own boss." Not so. From the moment Dynamex came out, I have been asking how a worker, say a Lyft driver, who gets to decide from minute to minute whether to perform the job can possibly be deemed to be under the control and direction of the employer. In fact, these drivers are under the control and direction of the passenger, not the company. I have seen no substantive answer to this question in the thousands of words published on this issue. There can be no better indicator of whether a worker is "her own boss" than whether or not the worker can choose to come to work or not and suffer no adverse consequences if she chooses not to.

5. The Issue Deserves a Balance Approach

CLF's reason number five is that "all workers deserve dignity and respect on the job." Respectfully, that is not an argument in support of AB 5. The bill will do nothing to ensure employees are treated with dignity and respect. No piece of legislation can do that. And, isn't affording the individual worker an opportunity to enter into flexible working relationships one way of affording her dignity and respect?

Legislators would best serve the interests of all Californians if they passed legislation that strikes a balance that protects the flexibility and independence of those who choose to be independent contractors and the businesses who need to hire them. The broader Borello test, the standard prior to Dynamex, was not the problem. Quite frankly, I believe the drivers in Dynamex should have been characterized as employees even under that test. This was an example of bad facts making bad law.

Arguing against AB 5 is, in some sense, a fool's errand. Democrats currently hold a 'super-duper-majority' in the Legislature. Gov. Gavin Newsom is, reportedly, much more amenable to signing AB 5 than Gov. Jerry Brown was. Although a new law in this area is likely, we can hope that whatever emerges from the "sausage factory" will reflect a balanced approach to the issue. 