Schrödinger’s Cat? Ninth Circuit Disrupts Trucking Industry with Contractor Misclassification Ruling

Have you heard of Schrödinger’s cat? It’s not a real cat, like Felix or Brian Setzer. It’s a hypothetical, seemingly impossible cat that exists only in the world of quantum physics. Schrödinger’s cat refers to a thought experiment in which a cat in a box is simultaneously alive and dead, until you open the box and observe the cat. Then, stubborn as cats are, it will be only one or the other, and that’s when you realize you prefer dogs anyway.

In a ruling last week, the Ninth Circuit has tried to give the trucking industry Schrödinger’s cat.

The issue was whether California’s infamous ABC Test applies to the trucking industry. The answer now is both yes and no, depending on where you look.

If you’re in California, the Ninth Circuit says yes, the ABC Test applies to the trucking industry. Under the ABC Test, now part of California’s Labor Code, most workers are classified as employees, not independent contractors, unless the work they perform is “outside the usual course of the hiring entity’s business.” (There’s more to the ABC Test, but that’s Part B, the hardest part to meet.)

In the trucking industry, it’s hard to argue that owner-operator truckers retained by a trucking company are performing work that is “outside the usual course” of the trucking company’s business. The ABC Test would likely reclassify most owner-operators as employees. The California Trucking Association brought a lawsuit in 2018, arguing that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) preempts this California law from being applied to trucking. The FAAAA preempts state laws “relating to a price, route or service of any motor carrier … with respect to the transportation of property.” Cal Trucking argued that applying the ABC Test and reclassifying owner-operators as employees would affect the prices, routes, and services provided.

Last week, the Ninth Circuit ruled that the ABC Test is a “generally applicable” law that does not sufficiently affect prices, routes, or service to be preempted. California’s ABC Test therefore applies to trucking and is not preempted by the FAAAA.

Now remember the cat – both alive and dead?

If you’re in Massachusetts, the answer to the same question is no, the ABC Test does not apply to trucking. In 2016, the First Circuit ruled that the FAAAA preempts Massachusetts’ ABC Test (which is the same as California’s) because of its effect on prices, routes, and service, when applied to trucking.

So what happens now? How can one federal law simultaneously mean two different things?

There are three ways this can play out:

  • The full Ninth Circuit might rehear the case and could reverse its ruling (which was a 2-1 split) to conform with the First Circuit’s view;
  • The ruling might stay as it is, meaning that the interpretation of a federal law (the FAAAA) is different in California and Massachusetts, even though their state ABC Tests are the same; or
  • The Supreme Court will take the case and resolve the circuit split.

I grew up in Miami where they had greyhound racing, which you can bet on. I don’t think there’s anywhere you can go and bet on cats. But if I were a betting man on this one, I’d wager that the Supreme Court weighs in at some point.

The owner-operator model in the trucking industry is so well-established and has been permitted for so long under federal law that it seems impossible for the Supreme Court to allow the FAAAA to mean two different things in two different states.

And what about the rest of the country?

The Third and Seventh Circuits have ruled that the FAAAA does not preempt state wage and hour laws when applied to trucking, but those courts were not considering strict ABC Tests like those reviewed by the First and Ninth Circuits. The ABC Test aims to reclassify most contractors as employees; it is no ordinary wage and hour law. More states are considering adopting strict ABC Tests and, in those states, we don’t know whether the FAAAA would preempt state classification law for truckers or not.

In other words, for most of the country, the cat is both alive and dead, and we won’t know which it is until we look. Unfortunately for tens of thousands of truckers, this is not a mere thought experiment. The disruption to the industry is massive, and the sooner we get a clear answer, the better it will be for everyone. Except maybe the cat.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Stop Making Sense: California Companies Can Be Liable for Not Following Rule That Did Not Yet Exist

Sometimes things stop making sense. And I’m not referring to the 1984 Talking Heads album, which included “Psycho Killer,” “Burning Down the House,” and other songs least likely to be used in an episode of Sesame Street.

No, when I say things “stop making sense,” I’m thinking more like dogs climbing ladders, pigeon-eating catfish, or Nazi Russian goats. Seriously mind-bending facts. The stuff that makes you question what was in those brownies.

The California Supreme Court’s ruling today falls in that category. Remember the 2018 Dynamex decision? That’s the one where the Court invented a new ABC Test for deciding whether someone was an independent contractor or an employee under California wage and hour law. Ever since then, companies have been trying to figure out whether that made-up test would apply retroactively. In other words, would California hold companies liable before 2018 for not following a test that did not yet exist until 2018?

After today’s decision in Vazquez v. Jan-Pro, we now know the answer: Of course! It’s California. Even companies not in the fortune telling industry should have known what legal standard the justices were going to invent. And of course it’s fair to hold companies liable for failing to comply with a standard that, before 2018, did not exist anywhere in California law. If Johnny Carson could figure out what was in that envelope (“seersucker“), California business should have been able to figure out what legal test the California Supreme Court would make up in 2018.

The Court reasoned that it’s normal practice for a decision to apply retroactively and said it’s only fair for the decision to apply to everyone retroactively since Dynamex didn’t see it coming either. The Court rejected the common sense notion that it would be unfair to apply the test retroactively, even though courts across California had — for years — applied the multi-factor Borello balancing test when determining employee vs. independent contractor status.

One saving grace may be that the Dynamex decision is now almost three years old, so statutes of limitation for wage and hour claims are running out. Most wage and hour claims in California must be brought within three or four years of the violation, depending on the claim asserted.

I can’t say this decision is surprising. But I couldn’t say the knife-wielding squirrel featured in the last blog post was surprising either. It’s a crazy world out there, folks. Sometimes it’s best to just stay home and watch Veep, which once seemed too outlandish to be believable.

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Buckle Up? Why The Gig Economy Should Love Biden’s HHS Pick

Back before seatbelts were a thing, Sears sold this handy Auto Strap for Front-Seat Tots. Tie your toddler to some part of the car, and drive carefree! What could go wrong?

Ok, things have changed a bit when it comes to driving. Seatbelts and airbags seem to have carried the day. Things have also changed quite a bit in the modern workforce, with the gig economy pushing aside traditional employer-employee work relationships.

Something important just happened to help California gig economy companies, and it’s gone under the radar. Biden named California Attorney General Xavier Becerra as his pick for Health & Human Services. Why should gig economy companies care who Biden’s HHS pick is? Because naming Becerra to HHS means Becerra will no longer be California’s Attorney General. And that’s good new because a key part of Becerra’s agenda as State AG had been to knock around gig economy companies as much as possible.

Becerra tried to sabotage Prop 22 by giving it a misleading description on the ballot, but voters saw through it and passed the measure anyway.

Becerra has been the driving force behind California’s lawsuits against ride share companies, trying to force them to reclassify drivers as employees.

But now, assuming he gets confirmed, someone else will take over as California AG. Hopefully it will be someone with less of an anti-gig economy agenda than Becerra. We’ll see. But for now, this pick seems to be good news. I don’t know what he’ll do as HHS Secretary, but I know what he won’t do as HHS Secretary, and that’s to pick fights with companies who help to keep the gig economy strong.

So strap in and let’s see what this new ride will bring. Just be sure to use a seatbelt, not a $1.88 standing harness.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Election News: California Voters Adopt Prop 22; Kentucky Voters Elect Dog as Mayor

Zippy evaluates the candidates.

Some elections are more consequential than others. It can be tough to lose, but in Rabbit Hash, Kentucky, the candidates for mayor are probably indifferent to the outcome. Even the winner probably doesn’t do a lot of mayoring.

That’s because the mayor of Rabbit Hash is a dog. Since 1988, the mayor has always been a dog. This year’s winner is a six-month old French bulldog named Wilbur Beast. Wilbur succeeds incumbent Brynneth Pawltro, a pit bull who has served since 2016.

Click here for an adorable photo of the winner.

In other election news (in case you were wondering whether there was anything else happening in the category of elections), voters in California passed Proposition 22. Prop 22 will allow ride share and delivery drivers in California to maintain independent contractor status, so long as the app companies provide a suite of predetermined benefits. Read more here.

That means the ABC Test in AB 5 will no longer apply to ride share or delivery drivers in California. The new exemption does not apply to other industries.

Look for intense lobbying from other industries to obtain similar treatment. Hopefully Prop 22 serves as model legislation and will adopted elsewhere throughout the country.

There was intense lobbying in the Rabbit Hash race too. Wilbur Beast’s owner, Amy Noland, told CNN that the dog had done a lot of campaigning and had hosted a lot of events.

According to the Rabbit Hash Historical Society, “The people of Rabbit Hash generally elect mayors based on the candidates’ willingness to have their belly scratched.” Based on my informal survey of other recent political races, this appears to be a anomaly.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Signs of Trouble: California Ruling Raises Stakes for Ride Share

Please, no.

When governments try to help people, they don’t always get it right. The British Conservative party just wants to help. Or does it? This would be a rather sinister way to get rid of the homeless problem, don’t you think?

Same problem with the battle over whether ride share drivers are employees or independent contactors. Good intentions have unintended consequences. The California Attorney General claims to be helping drivers with his lawsuit against the ride share companies. But the state’s effort fails to recognize the massive unintended consequences.

In August, a California court issued a preliminary injunction requiring the major ride share companies to reclassify all California drivers as employees. The ruling was based on the California law (AB 5) and its ABC Test, which presumes that anyone performing services is an employee, unless three strict factors are met.

The August ruling was temporarily placed on hold while an appeals court reviewed it.

But on Thursday, the appeals court reviewed it and agreed that the ruling was proper. The stakes have been raised, and the future of ride share in California may now hinge on what happens with Prop 22, which is on the ballot right now in California.

Despite what the judges and the California Attorney General may think, ride share companies can’t just flip a switch and make all drivers employees. The logistics and expenses associated with making that change call into question whether the effort would even be worth it. When the initial court decision requiring reclassification came out in August, there were rumblings that ride share in California might shut down entirely, at least temporarily, while the companies re-evaluate and decide whether to re-tool.

The one saving grace would be Proposition 22.

As explained here, a Yes vote on Prop 22 would allow ride share companies to continue to classify drivers as independent contractors so long as they provide a suite of benefits and guarantees described in the proposed law. These would include:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

The core problem with the Independent Contractor vs. Employee question is that, under U.S. law, the choice is binary. You’re one or the other. And even if ride share companies wanted to provide more benefits for drivers (and they have said they do), they are constrained by the current laws. The more companies do for the drivers, the more likely it is that the law will view those well-intentioned efforts as evidence that the drivers are really employees. This dilemma fits squarely within the box of “no good deed goes unpunished.”

Prop 22 offers a middle ground. Drivers would get more protection and benefits, and ride share companies would be protected from claims that providing those protections and benefits converts the drivers to employees. This type of law should serve as a model for how to deal with the Independent Contractor vs. Employee question–not just in California but nationwide. The choice should not be binary.

Thursday’s decision by the appeals court raises the stakes, and voters in California will decide the outcome in less than two weeks.

The homeless population in Britain thankfully has more time.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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California’s AB 5 Has Been Repealed, Sort Of.

Rain rain go away, come again another day.

When Zeus sends his thunderbolts into Cleveland, Zippy gets scared. The snow, wind, and rain don’t bother her, but the thunder and lightning cause her to shake. Usually she hides in the shower.

Seeking shelter from the storm (apologies to Robert Zimmerman) is what California businesses are doing too. Assembly Bill 5 (AB 5), codifying the ABC Test for determining who is an employee, has been in effect since January 1, 2020.

On Friday, a new law repealed and replaced it. This new law, AB 2257, passed both chambers in the California legislature unanimously and was signed into law September 4 by Gov. Newsom. It contains an urgency clause, which means it takes immediate effect. So AB 5 is gone.

Great news for businesses, right? Not exactly.

AB 2257 moves the ABC test to a different part of the California Labor Code– new Sections 2775 through 2787–and cleans up some of the confusing and poorly considered language in AB 5. It does not, however, provide relief from the ABC Test for most large businesses.

The revisions make it easier for entertainers, freelance writers and photographers, and digital content aggregators to maintain independent contractor status. It scraps the arbitrary 35-article limit for freelance writers to maintain independent contractor status. It allows entertainers to perform single event gigs without becoming employees. It cleans up some other language too, but it does not make substantial changes that would excuse large businesses from the ABC test.

For example, subsection 2750.3(f) of AB 5 addressed whether an exception applies for work requiring a license from the Contractors State License Board (CSLB). The exception, with its multi-part test, is unchanged. It just moves to a new section of the Labor Code, new Section 2781.

One small glimmer of hope comes from some clarifying language for the business-to-business exception. That exception still does not apply for work that requires a CSLB license. To fall within that exception (meaning that the ABC Test would not apply), one of the requirements is that the work must be performed for the benefit of the contracting business, not its customers. Under the revised law, that requirement goes away if “the business service provider’s employees are solely performing the services under the contract under the name of the business service provider and the business service provider regularly contracts with other businesses.” For grammarians who despise double negatives, this is an exception to the exception. You’re welcome. What it means is if your subcontractor has its own employees, operates as its own business, and performs work not requiring a CSLB license, it may be easier to meet the business-to-business exception, thereby avoiding the ABC test.

So where does that leave us? On one hand, the fact that the bill passed both chambers unanimously shows a recognition that AB 5 had some serious flaws. But on the other hand, the fixes that both chambers thought were appropriate are of minimal help to large businesses. It’s like unleashing a horrible lab-created supermonster, then deciding that its eyelashes should be less curly. The largely-superficial changes in AB 2257 are mainly designed to help maintain independent contractor status for individuals who truly run their own businesses, particularly in the entertainment, journalism, and digital content fields.

This new law obliterates AB 5 in name, but not in function.

Like the blanket I gave Zippy, this move by the California legislature is not likely to provide any shelter from the storm. The ABC Test in California remains alive and well. Whether you grab a blanket or hide in the shower, the ABC Test is here to stay.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Never Surrender: Appeals Court Grants Reprieve for Ride Share App Companies; Focus Turns to Prop 22.

Album cover: Boy in the Box.
Label: Aquarius in Canada, EMI America in the U.S.
Sleeves: Definitely rolled up if you could see them.

Thank you to Canadian singer Corey Hart for providing the theme to this week’s post. The Number 3 song this week in 1985 opens with, “Just a little more time is all we’re asking for.” The song, of course, is Never Surrender.

Last week we wrote about the preliminary injunction granted by a California Superior Court, preventing ride share app companies statewide from continuing to classify drivers as independent contractors. We called that ruling “Act I” because the matter was headed to appeal.

As expected, the matter was immediately appealed. Now it’s time to queue up Canada’s Juno Award winner for 1985 “Single of the Year“:

Just a little more time is all we’re asking for.

‘Cause just a little more time could open closing doors.

In a more musical world, those would have been the opening lines to the Motion for Stay in the Court of Appeals. Regardless, the motion was granted, and the ride share app companies are not going to reclassify anyone quite yet.

If the stay was not granted, the ride share app companies had threatened to shut down in California.

Oral arguments are scheduled for mid-October, which means a decision is months away. As we expected in last week’s post, the real action is on Proposition 22, on the ballot this November.

If Proposition 22 passes, the new ABC Test in Assembly Bill 5 (which went into effect Jan. 1, 2020) would not apply to workers in the app-based rideshare and delivery business. Instead, those workers could stay classified as independent contractors, but the app-based companies must ensure that the drivers receive a predetermined level of compensation and benefits, including:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

Here’s the webpage for Yes on 22. Keep a close eye on the results of the vote because it will probably determine the future of ride share in California.

And don’t forget to wear your sunglasses at night.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Something Is Rotten in the State of California? Ride Share Misclassification Ruling Is Merely Act I

CA flag pole

“To be or not to be” are the opening words of a soliloquy by Prince Hamlet. With that, I have exhausted what I remember about Shakespearean plays without consulting Wikipedia. Having consulted Wikipedia, I can confirm that this soliloquy occurs in Hamlet, Act III, Scene 1.

A lot happens in Act III and beyond, and if you stopped reading Hamlet after Act I, you’d miss most of the action, including assorted plotting, scheming and mayhem.

Last week in California, a different kind of mayhem began in a major case involving alleged independent contractor misclassification. In California v. Uber, a state superior court judge granted a preliminary injunction, requiring ride-sharing app companies to reclassify California drivers as employees. But this order might not be the poisoned blade it seems to be. Either the ruling is a substantial blow, or it’s much ado about nothing. For now, it’s too early to tell. We’re still in Act I. Like in Hamlet, the real action will be in the later acts.

Read the rest of the post here, on BakerHostetler’s Employment Law Spotlight Blog.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Rules for Drivers? California’s ABC Test Could Change Again in 2021

Worst parking.jpg

Rebellious? Indifferent? Clueless? I’m still trying to understand how this car thought it was ok to take up FOUR parking spaces in the parking lot at a Walgreens near my house.

Any one of the spaces seems suitable for a car of ordinary proportions. I have parked in most of these four spots before, and my experiences were uniformly positive. I’d give four stars to each spot. Reliable, met expectations. Near enough to the store entrance. Picking just one of the four would be an excellent way to start your shopping experience.

When people don’t like the rules they’re expected to follow, one approach is to try to change the rules. That’s what ride share and delivery app companies are doing in California.

Late last month, these companies achieved an important milestone, reaching the 625,000 signature threshold for a November ballot initiative that, if passed, would change the test in California for determining Employee vs. Independent Contractor. The measure will now appear on California ballots, giving voters the chance to override A.B. 5 for ride share and delivery app companies.

If the initiative passes, the new ABC Test would not apply to workers in the app-based rideshare and delivery business. Instead, those workers could stay classified as independent contractors, but the app-based companies must ensure that the drivers receive a predetermined level of compensation and benefits, including:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

I wrote more about this bill here, leading the post with a harrowing flight selection option offered on my United app.

So if you‘re reading this post from the Left Coast, get out and vote in November. You can make a meaningful change in the way that California approaches the question of Who Is My Employee? In the meantime, drive safe, wear your mask, and park within the lines.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Worried about ABC Tests? Here’s What You Have to Look Forward to.

balloons-1786430_1280

Recent coronavirus-related conversation in my house, after cancellation of planned spring break vacation, loss of kids’ summer internships, suspension of in-person college classes, and more than one day of snow in May:

Lisa: This is getting ridiculous. We need something to look forward to.

Me: 2021?

It may feel like there’s not much to look forward to lately, but if you’re into watching state bills on independent contractor misclassification, I’ve got some exciting news for you! Not really. No one’s into that. But I’m going to share anyway.

Seven states are currently considering bills that would adopt strict ABC Tests for determining whether someone is an employee or an independent contractor. What do I mean by “strict ABC Tests”? I mean the same test California recently adopted in Dynamex and under Assembly Bill 5. I mean the test where anyone performing services is presumed to be an employee unless all three of these things are proven, with part B being the hardest to meet:

(A) 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) the worker performs work that is outside the usual course of the hiring entity’s business, and 

(C) the worker is customarily engaged in an independently established trade, occupation, or business.

So which states are vying for the title of Miss California? Here are the 7 states with bills currently pending that, if passed, would adopt a strict ABC Test:

  • Massachusetts – would expand test to unemployment
  • Michigan
  • Minnesota
  • New Jersey – switching from looser part B
  • New York
  • Pennsylvania – for gig-based platforms only
  • Rhode Island

I’ll continue to minor these bills, mainly because I know no one else wants to. But at least we all have something to look forward to.  Happy new year?

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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