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California AB5 -- independent contractors becoming employees (1 Viewer)

Maurile Tremblay

Maurile Tremblay

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Is there no thread about this? I didn't see one on the first page.

The IRS has a test for determining whether a worker is properly classified as an employee or as an independent contractor. From a federal perspective, this mostly affects whether somebody gets a W-2 (with withholding) or a 1099 (without withholding).

States have their own tests, which affect whether somebody is covered by minimum wage laws, workers comp, unemployment insurance, etc. Most state tests are pretty much in line with the IRS test, roughly speaking, so if you're an employee from the IRS's perspective, you're also likely an employee from your state's perspective, and vice versa.

That changes this year in California. California has passed a new law that, theoretically, turns a lot of independent contractors into employees. Uber and Lyft drivers are getting a lot of the publicity, but the same issue concerns freelance writers and photographers, gig-playing musicians, and a host of other peeps.

It might have some good effects, but there will also be a lot of bad effects. Here's an example of what seems like a rather legitimate complaint:

https://twitter.com/delightedbite/status/1216834042881949697

Uber and Lyft are planning to just completely ignore the law and buy off politicians to get it reversed before it's heavily enforced. I know that many musicians are also planning to just ignore the law, hoping it will quickly be repealed. Many companies that employ freelance writers, however -- e.g., Vox -- are cutting ties with independent contractors in California in order to comply.

 
I feel like using independent contractors is mainly a ploy for companies to get around paying benefits and is masking terrible employment economic indicators "I am not unemployed, I drive for uber!". We are replacing full time jobs with freelance jobs that may or may not pay a living wage. My company often hires full time contractors for a year or two for the same reason, and I dislike it there too. If you need to hire someone, hire someone. That article mentions companies avoiding hiring people in CA for due to this law, but I think a better solution is for every state to implement a similar law, avoiding the temptation to outsource work to whoever will pay the least. 

 
huthut said:
I feel like using independent contractors is mainly a ploy for companies to get around paying benefits and is masking terrible employment economic indicators "I am not unemployed, I drive for uber!". We are replacing full time jobs with freelance jobs that may or may not pay a living wage. My company often hires full time contractors for a year or two for the same reason, and I dislike it there too. If you need to hire someone, hire someone. That article mentions companies avoiding hiring people in CA for due to this law, but I think a better solution is for every state to implement a similar law, avoiding the temptation to outsource work to whoever will pay the least. 
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I see it as big corporations getting bigger and killing creativity on many levels.  The IRS has clear, solid, and fair rules on what an employee and IC are.

 
huthut said:
I feel like using independent contractors is mainly a ploy for companies to get around paying benefits and is masking terrible employment economic indicators "I am not unemployed, I drive for uber!". We are replacing full time jobs with freelance jobs that may or may not pay a living wage. My company often hires full time contractors for a year or two for the same reason, and I dislike it there too. If you need to hire someone, hire someone. That article mentions companies avoiding hiring people in CA for due to this law, but I think a better solution is for every state to implement a similar law, avoiding the temptation to outsource work to whoever will pay the least. 
Click to expand...
It don't think it's that simple.  Take Uber and Lyft drivers. Under the new tax law, if they were treated as employees they would not be able to deduct any expenses against the income they receive.  My guess is they pay less in taxes getting a 1099 and deducting their related automobile expenses than receiving a W-2 and having no business deductions.

 
My wife's employer set her up as 1099 instead of W2. From what I can tell, there's no way she should be 1099. But, I'm pretty sure we take home more pay this way, so I don't really care.

 
This seems like a good theory:

The far left considers it backward to ban sexual relationships between consenting adults (I agree), but enlightened to ban economic relationships between them.

In truth though it's not fair to imply this bill was ideologically driven. This was apparently a classic old-style back-room deal between the Teamsters and California Democrats. The Teamsters want to capture Uber and Lyft drivers, and to do that they have to be employees.

All the harm done to other types of freelancers in California was merely collateral damage of the Teamsters' pursuit of Uber and Lyft.

In 1950 the Teamsters were so powerful they could have prevented Uber and Lyft from existing at all, except on their terms. By 2050 they won't be able to stop anyone doing anything. Now we are in an intermediate phase where the fight still happens, but messily.

 
Here's the text of the law.

Within it, here's the clause that defines employee, with the independent contractor definition in bold:

SEC. 2.

 Section 2750.3 is added to the Labor Code, to read:

2750.3.

 (a) (1) For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

(2) Notwithstanding paragraph (1), any exceptions to the terms “employee,” “employer,” “employ,” or “independent contractor,” and any extensions of employer status or liability, that are expressly made by a provision of this code, the Unemployment Insurance Code, or in an applicable order of the Industrial Welfare Commission, including, but not limited to, the definition of “employee” in subdivision 2(E) of Wage Order No. 2, shall remain in effect for the purposes set forth therein.

(3) 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).

(b) Subdivision (a) and the holding in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), do not apply to the following occupations as defined in the paragraphs below, and instead, the determination of employee or independent contractor status for individuals in those occupations shall be governed by Borello.

(1) A person or organization who is licensed by the Department of Insurance pursuant to Chapter 5 (commencing with Section 1621), Chapter 6 (commencing with Section 1760), or Chapter 8 (commencing with Section 1831) of Part 2 of Division 1 of the Insurance Code.

(2) A physician and surgeon, dentist, podiatrist, psychologist, or veterinarian licensed by the State of California pursuant to Division 2 (commencing with Section 500) of the Business and Professions Code, performing professional or medical services provided to or by a health care entity, including an entity organized as a sole proprietorship, partnership, or professional corporation as defined in Section 13401 of the Corporations Code. Nothing in this subdivision shall apply to the employment settings currently or potentially governed by collective bargaining agreements for the licensees identified in this paragraph.

(3) An individual who holds an active license from the State of California and is practicing one of the following recognized professions: lawyer, architect, engineer, private investigator, or accountant.

(4) A securities broker-dealer or investment adviser or their agents and representatives that are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority or licensed by the State of California under Chapter 2 (commencing with Section 25210) or Chapter 3 (commencing with Section 25230) of Division 1 of Part 3 of Title 4 of the Corporations Code.

(5) A direct sales salesperson as described in Section 650 of the Unemployment Insurance Code, so long as the conditions for exclusion from employment under that section are met.

(6) A commercial fisherman working on an American vessel as defined in subparagraph (A) below.

(A) For the purposes of this paragraph:

(i) “American vessel” has the same meaning as defined in Section 125.5 of the Unemployment Insurance Code.

(ii) “Commercial fisherman” means a person who has a valid, unrevoked commercial fishing license issued pursuant to Article 3 (commencing with Section 7850) of Chapter 1 of Part 3 of Division 6 of the Fish and Game Code.

(iii) “Working on an American vessel” means the taking or the attempt to take fish, shellfish, or other fishery resources of the state by any means, and includes each individual aboard an American vessel operated for fishing purposes who participates directly or indirectly in the taking of these raw fishery products, including maintaining the vessel or equipment used aboard the vessel. However, “working on an American vessel” does not apply to anyone aboard a licensed commercial fishing vessel as a visitor or guest who does not directly or indirectly participate in the taking.

(B) For the purposes of this paragraph, a commercial fisherman working on an American vessel is eligible for unemployment insurance benefits if they meet the definition of “employment” in Section 609 of the Unemployment Insurance Code and are otherwise eligible for those benefits pursuant to the provisions of the Unemployment Insurance Code.

(C) On or before March 1, 2021, and each March 1 thereafter, the Employment Development Department shall issue an annual report to the Legislature on the use of unemployment insurance in the commercial fishing industry. This report shall include, but not be limited to, reporting the number of commercial fishermen who apply for unemployment insurance benefits, the number of commercial fishermen who have their claims disputed, the number of commercial fishermen who have their claims denied, and the number of commercial fishermen who receive unemployment insurance benefits. The report required by this subparagraph shall be submitted in compliance with Section 9795 of the Government Code.
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Not a lawyer but I imagine the problems mentioned upthread revolve around the (B) clause bolded above. It'd be tough for a writer submitting material to a publisher (online or otherwise) is performing work outside the usual course of the hiring entity's business.

I wonder if people will really try to enforce this against artists etc.

 
Maurile Tremblay said:
This seems like a good theory:

The far left considers it backward to ban sexual relationships between consenting adults (I agree), but enlightened to ban economic relationships between them.

In truth though it's not fair to imply this bill was ideologically driven. This was apparently a classic old-style back-room deal between the Teamsters and California Democrats. The Teamsters want to capture Uber and Lyft drivers, and to do that they have to be employees.

All the harm done to other types of freelancers in California was merely collateral damage of the Teamsters' pursuit of Uber and Lyft.

In 1950 the Teamsters were so powerful they could have prevented Uber and Lyft from existing at all, except on their terms. By 2050 they won't be able to stop anyone doing anything. Now we are in an intermediate phase where the fight still happens, but messily.
Click to expand...


I know its not the main point of your post, but I don't think the comparison to sexual relationships is a good one. The economic relationship in this scenario is one where one side has significantly more power than the other. I assume most Dems have no trouble, for example, saying that sexual harrassment is wrong in the work place and should not be allowed. That's a better comparison.

 
whoknew said:
I know its not the main point of your post, but I don't think the comparison to sexual relationships is a good one. The economic relationship in this scenario is one where one side has significantly more power than the other. I assume most Dems have no trouble, for example, saying that sexual harrassment is wrong in the work place and should not be allowed. That's a better comparison.
Click to expand...
It’s not the main point, but sexual harassment isn’t consensual, so I don’t think it’s a better comparison.

 
Last edited by a moderator:
dgreen said:
My wife's employer set her up as 1099 instead of W2. From what I can tell, there's no way she should be 1099. But, I'm pretty sure we take home more pay this way, so I don't really care.
Click to expand...
Until you have to pay employment taxes.  You better watch out.

 
SCOTUS declined to hear an AB5 case regarding truckers.  Get ready for the supply chain to get worse.

 
Maurile Tremblay said:
The far left considers it backward to ban sexual relationships between consenting adults (I agree), but enlightened to ban economic relationships between them.
Click to expand...
I'm not sure this analogy is apt.  There are lots of potential reasons for government to regulate economic relationships between consenting adults.  After all, economic relationships between consenting adults is the primary source of revenue for the government.  There's a reason that under the table economic relationships run afoul of tax laws.

 
Rich Conway said:
I'm not sure this analogy is apt.  There are lots of potential reasons for government to regulate economic relationships between consenting adults.  After all, economic relationships between consenting adults is the primary source of revenue for the government.  There's a reason that under the table economic relationships run afoul of tax laws.
Click to expand...
I think analogy is a good one.  
 

It can also be argued that sexual relationships between consenting adults is in fact the primary source of revenue for the government.  No sex, no babies, no workers to pay taxes.  If you want to argue that protecting revenue is the justification for the government to regulate relationships then homosexuality and abortion would seem to be right in the cross hairs.

 
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