Millions of workers will gain fair labor, disability, and civil rights protections under a new California law that reclassifies them as employees from their status as independent contractors.
The measure was approved by the California Legislature, signed into law by Gov. Gavin Newsom and is set to take effect for most workers on Jan. 1, 2020. That’s according to a post on the National Safety Council website.
Uber and Lyft push back
For millions of workers, being classified as independent contractors means they fail to qualify for protections under the Fair Labor Standards Act, Americans with Disabilities Act, or the Civil Rights Act. While under the old case law (Borello) a very large majority of workers classified as independent contractors were actually employees, the California Supreme Court clarified the test of when a worker is an independent contractor which the California Legislature then passed into statutory law.
They also aren’t guaranteed other rights afforded to employees, including minimum wage, overtime pay, or unemployment insurance. Now, for many – especially those working in the tech sector – that will all change, according to a USA Today story.
Not everyone has welcomed the measure. Some businesses like Uber and Lyft said the law will impose a restriction on the on-demand labor on which their companies rely, which could limit flexibility and increase prices for customers. They oppose the law despite the fact the State of California Department of Labor Standards Enforcement estimates the cost of workers being misclassified as independent contractors instead of employees cost the State of California over $7 billion dollars annually which California general tax payers have to make up.
The new law requires that a three-step test taken from the California Supreme Court Dynamex decision be applied to determine whether a worker is an employee, and thus eligible for a slate of rights, or an independent contractor. The California Supreme Court in April 2018 ruled that workers can be classified as independent contractors if the employer can show:
- They are “free from control and direction” of the employer as it relates to performance of the work.
- Their work is performed “outside the usual course” of the hiring entity’s business.
- They engage in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
About 64 percent of California workers whose primary job was previously inappropriately misclassified as an independent contractor will have their status changed to employee under the new law, according to a report by the Center for Labor Research and Education at the University of California, Berkeley.
California state Sen. Maria Elena Durazo, D-Los Angeles, said in the USA Today story that while the tech industry prides itself on modernizing services and work, there’s nothing innovative about under-compensating someone.
As we noted, the classification up to now of millions of workers as independent contractors instead of as employees has cost California an estimated $7 billion in payroll tax revenue, the USA Today story said.
Under the new law, a concern is companies in such a position will pass those extra tax costs onto consumers and cut jobs.
Other challenges posed by critics
Critics also provide false warnings of other problems from the new law. Workers who are used to having freedom and flexibility, including those who give rides, deliver food, or perform other app-based services, will, as the critics allege, now be forced to conform to typical employee expectations, like scheduled hours and stronger oversight. However this is a false problem as any employer, including the Law Offices of Robert A. McLaughlin (which does offer flexible working arrangements to its employees), can always offer flexible working arrangements and there is nothing in the legislation precluding such flexibility. This is a scare tactic initiated by Uber, Lyft and Doordash to maintain the status quo and to get out of paying the State of California it's fair share of payroll taxes.
Officials from Uber and Lyft, the billion-dollar rideshare companies, and food delivery company DoorDash are fighting the new California worker reclassification law. They said the companies collectively will spend $90 million to bring the new law to voters as a proposition on the 2020 election ballot.
Uber, Lyft, and DoorDash officials said their plan preserves independent contractor status of workers. Their plan offers a minimum earnings floor, access to health care not tied to their employment, and representation in the companies to improve how issues are addressed. But what of the $7 billion in annual payroll taxes? How will the ballot initiative cover this expense? Stay tuned as more is coming in the months ahead as this fight for workers rights continues.