Gig worker or employee?
California will wrestle with that question this year with efforts under way in Sacramento to either codify or limit a groundbreaking state Supreme Court decision issued in April.
The ruling, in a suit brought by delivery drivers at Dynamex, made it harder for businesses to classify workers as independent contractors. It implemented a formula, called the ABC test, that says workers are employees if companies control what they do, if their tasks are central to a company’s core business, and if they don’t run independent businesses doing that work.
The ruling could upend scores of industries that rely on independent contractors, ranging from gig economy companies like Uber and Lyft to traditional areas such as architects, lawyers, insurance agents and emergency-room doctors.
Now, lawmakers, labor, companies, trade associations and workers are negotiating what will happen next. Unions want Dynamex to be enshrined as state law; companies do not. So far Dynamex has not resulted in any large-scale reclassification, although it has been cited as precedent in a few legal cases. Uber and Lyft drivers, for instance, remain independent contractors.
“We’re trying to codify what the Supreme Court said,” said state Assemblywoman Lorena Gonzalez, D-San Diego, who introduced AB5 to do that, although its exact provisions won’t be set until later this month. “We want to ensure that workers aren’t left behind in this new gig economy, doing one side hustle after another.”
While the Dynamex decision dealt only with pay, saying that workers who pass the ABC test are entitled to minimum wage and overtime, Gonzalez wants to take it further with benefits such as unemployment insurance, workers’ compensation, paid family leave, sick days and health insurance.
“All these things are important not only to workers but to the state of California, to ensure companies are contributing to a social safety net,” she said.
Assemblywoman Melissa Melendez, R-Lake Elsinore (Riverside County), has sponsored a competing bill, AB71, that would roll back the Dynamex provisions.
“This legislation addresses the chilling and potentially harmful impacts the Dynamex decision will have on the business community in our state and for the nearly 2 million Californians who have made the choice to have flexible work schedules as independent contractors,” she said in a statement.
Companies see any effort to reclassify workers as a threat. Employers pay about 30 percent more to pick up the tab for worker benefits. On-demand companies and others fear that they’d lose the ability to turn on and off labor in real time to match demand.
What makes a worker
The California Supreme Court set forth a three-part standard, called the ABC test, that says a worker is an independent contractor only if all of these apply:
A. Control: The company hiring the worker does not direct how the work is performed.
B. Scope: The work is in a field different from the hiring company’s business.
C. Independence: The worker runs a business doing the same kind of work performed for the hiring company.
Scores of trade groups and individual companies, including gig-economy players like Uber, Lyft, Caviar, DoorDash, Handy, Instacart and Postmates, have banded together as a coalition called I’m Independent to oppose any efforts to apply the ABC test to their workers.
“Dynamex jeopardizes work opportunities for millions of individuals who want to maintain independent contractor status for a host of reasons,” said Jennifer Barrera, executive vice president of the California Chamber of Commerce, which is spearheading the group.
“I don’t think there’s an industry that isn’t affected by that decision,” she said, citing transportation, construction, health services, hairstylists and barbers, insurance agents, music teachers, freelance writers and editors, architects, engineers and lawyers as among those who might be affected.
Gonzalez and labor leaders say workers lower on the economic ladder need the protection of employee status, while well-paid professionals like doctors, lawyers and architects would be exempt.
“We want to protect the workers who are most vulnerable to exploitation,” said Steve Smith, spokesman for the California Labor Federation. In addition to gig economy workers, he cited people who work at nail salons, car washes and performing services as examples. “Misclassification has been an issue for decades, long before the gig economy was even born.”
Behind the scenes, interest groups are negotiating about what provisions — and what industries — to include in any legislation.
“There’s been talk about easing up (on the ABC test) if companies provide portable benefits or other employment-like protections,” said Benjamin Ebbink, a Sacramento attorney at Fisher & Phillips, a law firm that represents employers, and a former consultant for the Assembly Committee on Labor and Employment Committee.
“There are even proposals to let workers come together and form a guild of independent drivers with some bargaining power, represented by unions,” Ebbink said. “Obviously, gig companies would be looking for some relief from the Dynamex decision or its possible retroactive effect in exchange.”
Uber and Lyft say they’d like to offer more benefits and perks to drivers, as long as that doesn’t involve making them employees and losing the real-time flexibility on how many drivers are working at any given time they consider key to their businesses.
Uber executives point to protections such as paid sick leave and paid parental leave that they’ve implemented in Europe, where laws are less binary about employee versus independent contractor.
“We really have to think about benefits for temporary workers where the benefits are mobile and you get the benefits regardless of if you’re moving from job to job,” CEO Dara Khosrowshahi said in September.
Regarding the current California landscape, “We support efforts to modernize labor laws in ways that preserve the flexibility drivers tell us they value while improving the quality and security of independent work,” Uber said in a statement.
“We are engaging with policy makers, labor, drivers, worker advocates, and others to actively explore options to allow drivers to maintain this flexibility while also addressing the lack of benefits for independent contractors,” said Loni Mahanta, Lyft vice president of future of work.
Gov. Gavin Newsom, a Democrat who was elected with support from both tech companies and labor, must walk a fine line in the negotiations.
“We come down on working across differences to collaborate,” he said at a press event in January. Ann O’Leary, his chief of staff, will lead a committee about the issues.
Ravinder Singh of Fremont has been an independent truck driver since the mid-1990s, ferrying sand, gravel, pipes and other supplies in his $156,000 Kenworth truck to and from construction sites around the Bay Area. He often goes to a different site every day on hauls that are arranged by truck brokers.
“I’ve been my own boss all my life,” he said. “If someone asked me to be an employee, that would like being hit with a brick.”
He makes several extended trips to India every year to spend time with his elderly father, wife and daughters. “If I worked for someone else, he’d fire me if I went for a month or six weeks,” he said.
Veena Dubal, an associate law professor at UC Hastings College of the Law, said his fears seem unfounded. Someone like him who works for multiple enterprises seems unlikely to become an employee.
“Companies are using confusion about the employment situation to scare people,” she said.
Dubal said that a new state law could allow companies to preserve flexible schedules while treating workers fairly. For instance, it could say that independent contractors must make at least minimum wage.
At the same time, drivers and other workers “deserve the panoply of regulations and protections that all workers have,” she said, citing workers’ compensation, unemployment insurance and the right to unionize.
“All workers in California deserve minimum wage and overtime protections; that is all Dynamex offers them,” she said. “What is at stake here is a living wage.”