Home Real Estate and Development New Exemptions To Worker Status Bill Revive Debate Over Independent Contractors

New Exemptions To Worker Status Bill Revive Debate Over Independent Contractors

In April of 2018, the California Supreme Court’s ruling on Dynamex Operations West v. Superior Court of Los Angeles County sent shockwaves through a variety of industries that rely heavily on the work of independent contractors. The ruling against the same-day delivery service Dynamex established stricter standards for classifying independent contractors and replacing the formerly used Borello Test. Since then, a bill proposed in the State Assembly has sought to codify the court’s decision into law. But a recent wave of exemptions for certain professions has re-energized critics who question the workability of the court’s ruling.

Assembly Bill (AB) 5, a legislative proposal authored by Assemblymember Lorena Gonzalez, would broaden the applicability of the court’s decision to cover not only work-related issues governed by wage orders – such as wages and work hours – but the labor code, which includes provisions for unemployment insurance and workers’ compensation. First introduced in December 2018, the bill recently went through a number of amendments, carving out exemptions for emergency room doctors, estheticians and other professions, a move that critics have described as a sign that the underlying test for classifying workers is flawed and “unworkable.”

Trucks
Truckers and delivery and rideshare drivers have been at the center of the debate around what defines an independent contractor, which has now made its way from the courts to the state legislature. (Business Journal photograph)

“If the ABC test were truly great, there would be no need for this bill since Dynamex became law over a year ago,” Shawn Lewis, policy director of the National Federation of Independent Business (NFIB), said in a press release following the adoption of amendments in July. “But the undeniable truth is the current status of the law is unworkable for far too many small businesses and entrepreneurs in a state as diverse as California.” The ABC test, which was implemented as part of the Dynamex ruling, set forth three criteria, all of which have to be met for a worker to be rightfully classified as an independent contractor under the new law.

The test requires workers to A) be free from control or direction of the hiring entity, B) perform work that is outside of the hiring entity’s usual course of business and C) that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

From trucking companies to strip clubs, the ruling incited a variety of responses. Many companies – as well as some independent contractors – have argued that the new regulation would disrupt functioning business models and force some workers into employee status against their will. Others see the ruling – and the subsequent legislative proposal – as an opportunity to organize and fight for more independence in worker contracts, or the additional rights that come with being classified as an employee.

Antonia Crane, a stripper, writing instructor, author and founder of Soldiers of Pole, a labor movement for exotic dancers, said the new rules have blown wind into the sails of a workforce eager to improve working conditions. Operating in a work environment that is plagued by sexual assault, racial discrimination and unfair business practices, Crane said dancers only stand to benefit from their newly-won employee status, despite efforts by many clubs to convince them otherwise.

“We’re tired of being stolen from, assaulted and charged to work,” she said, referencing “stage fees” or “mandatory tip-outs” that dancers have to pay in order to perform at a strip club. “Now that we’re employees, we decided that the stage fees, the assault, the coercion of these bogus contracts – we wanted to fight all of this stuff.”

Stripping is one of the few industries where workers have already reported a wholesale conversion from independent contractor to employee status as a result of last year’s court ruling, according to Crane, as clubs fear litigation from their newly-classified employees. Employers in the industry have lobbied against the new regulations. For example, social media posts show signs posted by the management of several Deja Vu locations, warning dancers of the disadvantages of their new status: less flexible hours and less opportunity to make money. The chain operates a number of strip clubs nationwide – a majority of which are located in Southern California – plus one location in Tijuana, Mexico.

“Those are classic union-busting tactics,” Crane said. “Being an employee has nothing to do with your schedule. Negotiating a contract with your employer is what unions do, and you can negotiate for a certain schedule, you can negotiate for the way that tips are distributed,” she added. “It has nothing to do with your so-called freedom.” Further, Crane noted, employees enjoy more wide-reaching protections against discrimination and wrongful termination, a toolbox that is now available to dancers as a result of their new status.

Consequently, Crane said she would like to see those rights expanded under AB 5 and her labor group, Soldiers of Pole, has no interest in seeking an exemption for their profession. “[As] strippers, we don’t want to be exempt from AB 5. We want to continue this organizing effort to improve this industry,” she concluded.

In other industries, the so-far unrealized possibility of a large-scale conversion toward employee status has raised concerns among industry groups and workers alike. The trucking industry has been at the center of the debate from its inception. While union efforts, such as the Teamsters’ Justice for Port Drivers initiative, have largely spoken out in support of converting more independent drivers into employees, other stakeholders have taken a more skeptical position.

“I like the way it is now. We pretty much get to be our own boss,” Josue, a driver and owner of a small trucking company, told the Business Journal. He asked for his last name and the name of his company to be withheld out of concerns over union retribution. “For me, I started off as a company man, then I went off and bought my own truck,” Josue said. He later went on to buy a few more trucks, which are now used by independent contractors working for his company.

Many of them, he explained, might want to become owner-operators at some point, or even start their own trucking company, like he did. “If the union would have it their way and everyone would be an employee, that would pretty much kill that whole thing,” Josue stated.

This trajectory is common among port drivers, said Weston LaBar, chief executive officer of the Harbor Trucking Association. “Some of the largest motor carriers in the entire harbor started out with one guy driving a truck,” LaBar noted, referring to the San Pedro Bay ports complex. “These are some of the things, as an industry, [that] we’re trying to preserve.”

For those who prefer the security of an employee position, Josue argued, there are enough companies around that pay a fair wage and offer employee contracts. “It’s up to the drivers; we’re all in demand,” he said.

Assemblymember Gonzalez, who worked as a labor organizer before she was elected in May 2013, said her bill is not intended to force independent contractors into employment contracts against their choice. “That’s not who we’re aiming it at, and we have a lot of exemptions to show for that,” Gonzalez said. “I think we’re providing – and [are] continuing to provide – clarification, so that people who really act as individual small businesses can still have a relationship with another business, without exploiting workers.”

But critics like NFIB argue that industry-by-industry exemptions fail to reflect the diversity of California’s small businesses, and that corporate tax filings, business licenses and other markers of independent businesses could be used to establish whether workers have been appropriately classified. “If we are going to make exceptions from Dynamex, then it should be based on the nature of the two entities, not what industry they happen to be in,” Lewis said. “Because we fundamentally believe that picking winners and losers in an issue [that is] this important is not the right path.”

Franchisees of the convenience store chain 7-Eleven have used the Dynamex ruling to revive a lawsuit against the company, which is currently making its way through the courts. In the lawsuit, the franchisees argued that 7-Eleven’s franchise contracts exerted so much control over each individual store’s business practices that they couldn’t be considered independent. “They want to be treated like independent business owners, they don’t want to be treated like glorified store managers,” Eric Karp, general counsel of the National Coalition of Associations of 7-Eleven Franchisees, told the Business Journal. Rather than striving to be classified as employees, Karp explained, the group is hoping that the new law will help them gain more freedom as 7-Eleven is required to prove its franchisees meet the requirements of the ABC test.

Steve Smith, director of the California Labor Federation, said the debate around AB 5’s details is a testament to the value of pursuing a legislative route. “I think the author has been very thoughtful in meeting with different groups, industries, business leaders and others to figure out which amendments to the bill would actually make sense and would preserve the integrity of the Dynamex decision, which undergirds AB 5,” Smith said. “That’s the advantage of the bill, as opposed to just going by the court decision, is that we actually have a chance not only to codify the court decision’s language, but to clarify it, so there’s no confusion as to whom it applies and to whom it doesn’t.”

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