When is an Employee Not an Employee? State Legislature Takes a Look at CA’s Gig Economy

Back in April, the California Supreme Court issued a unanimous ruling in what’s become known as “Dynamex” (Dymanex Operations West, Inc. v. Superior Court of California). Dynamex created a new test for employment status that would make it more difficult for employers to misclassify workers as “contractors” instead of employees. 

Independent contractors aren’t generally protected by certain legal rights afforded employees. For example, most federal anti-discrimination laws do not apply to contract employees. Employers don’t have to pay contractors a minimum wage or overtime. Employers do not deduct payroll taxes, as they must on employee paychecks. 

Transportation contractors must purchase and maintain vehicles, including trucks, taxicabs, and limos. Independent contractors must purchase their own tools. Contractors do not receive workplace safety protections or protections against sexual harassment. If a contractor is hurt on the job, he or she is not entitled to workers’ compensation. Contractors also do not have the right to organize to protest working conditions or pay. 

The internet’s gig economy has led to approximately 2 million “gig” workers in California, from rideshare drivers to home health workers, delivery people for everything from packages to meals, and even electricians or plumbers. In many of these situations, workers are performing the same tasks as employees -- but without the benefits and protection of employees. 

But the Court’s decision in Dynamex sought to change that. The burden would be placed on the employer to establish that a worker is an independent contractor and not an employee by establishing each of the factors in what is known as the ABC test. 

(A) that the worker 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; and 

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

Dynamex would make it much more difficult for employers to classify workers as independent contractors, which could come at significant cost to employers. The issue of worker classification is important to both business and to labor so it’s no surprise there are two bills in Sacramento. 

Assemblywoman Lorena Gonzalez Fletcher (D-San Diego) introduced Assembly Bill 5, sponsored by the California Labor Federation, a placeholder or “spot” bill that is intended to codify the Dynamex ruling. A representative for the California Labor Federation told the Sacramento Bee that “labor is open to incorporating changes in the bill that clear up the intent and applications of the ABC test...There could even be industries with unique employment models that could be exempted.” 

Assembly Bill 71, introduced by Melissa Melendez (R-Lake Elsinore) proposes reverting to the previous Borello test to determine if someone is an employee or independent contractor that was used prior to the Dynamex ruling. 

The Borello test uses the following 7 factors: 

1. Whether the person performing work is engaged in an occupation or business that is distinct from that of the company; 

2. Whether the work is part of the company’s regular business; 

3. Whether the company or the worker supplies the equipment, tools, and the place for the person doing the work; 

4. The worker’s financial investment in the equipment or materials required to perform the work; 

5. The skill required in the particular occupation; 

6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the company’s direction or by a specialist without supervision; 

7. The worker’s opportunity for profit or loss depending on his or her own managerial skill (a potential for profit does not include bonuses); 

Assemblywoman Melendez has stated in a press release that the Dynamex decision will have “chilling and potentially harmful impacts...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...Without clear legislative action, the Dynamex case could unravel gig and tech economies and threaten the traditional business models of realtors, teachers, beauticians, truck drivers, construction trades, and countless professions.” 

Classifying workers as contractors should not be a loophole to save costs to businesses. According to a survey released by the nonpartisan independent  Public Religion Research Institute, about half of Californians working in the gig economy are struggling with poverty -- and almost 1 in 10 adults in California currently work in the gig economy. When a company or sector classifies workers as contractors to save money, a competitor that hires employees is less competitive. For example, the taxi and limo industries have been battling with Uber and other rideshare companies over just this point. 

Should AB 5 include exemptions for certain business models, codifying the ABC test of the Dynamex ruling may make sense for California, ensuring Californians are offered protections in the workforce, while providing room for industries that have traditionally operated under the contractor model.

(Beth Cone Kramer is a professional writer living in the Los Angeles area. She covers Resistance Watch and other major issues for CityWatch.)

-cw