Category Archives: Independent Contractor vs. Employee

07.31.23
by

Today’s Question: “Should I Make This Person an Independent Contractor?” Consider These Three Factors

Rock history is filled with questions. There’s “Questions 67 and 68,” a 1969 release by the band then known as Chicago Transit Authority, about a girl that singer Robert Lamm was seeing in 1967 and ‘68. There’s “Question” by the Moody Blues, reflecting on the war in Vietnam. There’s even ? and the Mysterians, a typographically monikered pre-punk band that gave us “96 Tears.” (Fun fact: The band members were the children of migrant workers who had settled in Michigan.)

I can’t sing at all, but I can field questions. One question I get a lot is, “Should I make this person an independent contractor?”

Note the phrasing of this question. It’s not “Can I?” — that’s a legal question — but “Should I?” That’s partly a legal question and partly a business question. The answer largely depends on your tolerance for risk.

When trying to decide “Should I?” ask yourself three questions:

1. What is the likelihood the IC relationship will be challenged?

If no one ever questions the relationship, it never becomes an issue. But it’s not enough to consider whether you think the contractor will ever challenge the relationship. You need to worry about federal and state agencies, auditors, and other similarly situated contractors who might not be as content with their classification. Consider also that a contractor who is happily working might be less happy if your company terminates the relationship. A contractor who wants to be a contractor now might have other ideas later if the relationship ends badly and the contractor seeks legal advice.

Here are a few situations where there’s a high likelihood of a classification challenge:

  • Volume: The company works with a lot of independent contractors.
  • Industry: The contractors are performing services in an industry that is under heightened scrutiny, such as rideshare, installers, delivery drivers.
  • High Dollars: The independent contractors are paid a substantial amount of money, either individually or collectively.
  • General Audit Risk: The company considers an audit to be likely for any reason, even if unrelated to worker classification.
  • Similar Employees: The company has employees who do the same or similar work as the independent contractor.

Here are a few situations where there’s a low likelihood of a classification challenge:

  • One-off. It’s a one-off retention, meaning there’s just one independent contractor; there are no other independent contractors who are similarly situated.
  • Shared Expectations: The independent contractor wants to be an independent contractor (although that can change if the relationship ends badly).
  • Low Dollars: Low dollar value of the contract.
  • No Similar Employees: There are no employees doing what the contractor has been retained to do.

2. If there’s a challenge, what is the likelihood of success?

This is the purely legal question. Is the independent contractor classification correct under all of the applicable laws (federal, state, and local)?

That’s the question we usually explore in this blog (see all other blog posts, haha), but the legal analysis is only part of the equation you should be considering when asking the “Should I?” question. The answer to the legal question will depend on the facts, the contract, the applicable law, and the jurisdiction. This is the part where you want to reach out to a lawyer.

3. If misclassification is found, what are the likely damages or adverse consequences?

Often it’s a close call whether a worker is misclassified. Do you want to take that risk? Sometimes the stakes are so low that a company might be more willing to take the risk. If there are only a few independent contractors and they are not paid much money, you might be more willing to take the risk if there are facts that could support IC status (even if there are also facts that go the other way).

In making this assessment, there are generally several factors to consider:

A) What laws might be violated if the contractor is misclassified?

Sometimes an IC classification seems questionable on the facts, but the impact of misclassification would be very low. Suppose the IC works 15 hours a week, never more than 8 hours in a day, is paid at a rate of $20/hour or more, performs non-manual labor, and has other clients. Even if this worker is misclassified:

  • There’s no federal minimum wage or overtime violation (hourly rate exceeds minimum wage, no overtime hours).
  • There’s no state or local minimum wage or overtime violation (same).
  • There’s no failure to provide employee benefits (probably not eligible because part-time).
  • The risk of a workplace injury and resulting workers’ compensation claim is minimal (based on the nature of the work).
  • An unemployment claim is unlikely because the IC would continue to have other work (has other clients).

There could be local wage statement violations, meal or rest break violations, or disclosure violations. There could be a failure to reimburse business expenses. There could be tax penalties for failure to withhold. There could be an unfair labor practice charge under the National Labor Relations Act (see point #3 in this post). There could be penalties for failing to comply with local freelancer laws. There could be assessments for failing to pay into the unemployment and workers compensation systems. But none of these adverse findings are likely to create significant economic exposure under this fact pattern.

On the other hand, suppose the IC works varying hours per week, perhaps up to 60 hours, is paid on a fixed per project basis that would result in an hourly wage below the minimum if the IC worked a high number of hours, has no other clients, and performs manual labor. Suppose there are several ICs doing the same kind of work with the same IC classification. Now the risks are much higher in each category. You’re looking at possible violations of many laws, with potentially significant economic consequences.

B) What does the statute say about damages?

What damages are available? Are there penalties? Liquidated or punitive damages? Attorneys’ fees?

C) Is the potential misclassification systemic?

If the potential misclassification is of one person, the damages are going to be limited. If there are many ICs doing the same thing, the potential damages are multiplied. And, if there are many similarly situated ICs, a plaintiff’s lawyer might find the case attractive as a potential class action. If there are violations of law, your company may be liable for the plaintiff’s attorneys’ fees.

D) Is the use of contractors vital to the business?

For some companies, a finding of widespread misclassification could put the entire business model at risk. For other companies, a few adjustments can be made and life goes on.

E) Are there individual arbitration agreements in place?

Individual arbitration agreements can prevent class action litigation, but they don’t solve every problem. Is there a risk of mass arbitrations? Is your business still subject to California PAGA claims? Is the arbitration agreement enforceable as written?

F) Are there other practical or business considerations?

If there’s a finding of misclassification, what else might happen? Can you justify your decisions if questioned by your CEO or the board? Will there be adverse publicity? Would the business suffer reputational damage? Would the company’s value or stock price suffer? What would it cost to defend a claim, even if you win? If the company gets sued based on the decision to retain workers as contractors not employees, would your job be at risk?

That’s a lot of questions.

I know.

And we haven’t covered it all either. There are other factors to consider too, but hopefully this is enough to get you to start thinking about how to conceptualize the “Should I?” question.

The main point to remember is that “Should I?” is not purely a legal question. It requires business judgment and risk calculation too.

If you’ve had enough of the questions for today, I will leave you with this, courtesy of the best band to come out of Jacksonville, Florida.

 

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
07.24.23
by

Cry If You Want To: Individual Arbitration Agreements Can’t Stop PAGA Claims

A Nigerian comedian recently set out to beat the world record for continuous crying, seeking to cry for 100 consecutive hours. I expect that many new parents would object right here and point out that this record is bullsh@# because their infants have cried continuously for twice that long. But let’s assume the record here is for adult crying. Lacking the stamina of a newborn, the comedian failed miserably.

After six hours, the man experienced headaches, a swollen face, and lost his vision for 45 minutes.

A California Supreme Court decision last week may cause businesses to shed a few tears, but the ruling was no surprise, and companies just need to be prepared.

Remember how we love individual arbitration agreements as a tool for avoiding class action lawsuits? Companies that make widespread use of independent contractors should have these agreements in place, and most do. Courts generally enforce these agreements, which require claimants to bring any claims on an individual basis, not as part of a class action.

In California, there was an open question about whether an individual who is subject to an individual arbitration agreement could nonetheless bring a PAGA claim in California. PAGA refers to the Private Attorneys General Act, a California state law that allows “aggrieved individuals” to bring a claim on behalf of the state government, seeking relief for other employees. It’s not a class action but, to a defendant company, it feels like one.

In Adolph v. Uber, the California Supreme Court ruled that an individual whose claims are subject to an individual arbitration agreement may still be considered an “aggrieved employee” who can bring a PAGA claim seeking to remedy a defendant’s Labor Code violations against other employees.

The ruling was no surprise to the business community, but it clarifies an important point of law. You can read more about the decision here, in this BakerHostetler alert.

Businesses do not need to do anything differently on the preventive side, as a result of this ruling.

Businesses making widespread use of independent contractors should continue to require the contractors to sign individual arbitration agreements with class action waivers. While these agreements cannot prevent PAGA claims, they can often be used to delay PAGA claims. The agreement can include a clause requiring the parties to jointly request that any PAGA claim be stayed while the individual claim is arbitrated. This delay may frustrate the purpose of the PAGA claim, especially if your business prevails in arbitration against the individual.

So for now, nobody needs to follow the lead of the temporarily blind Nigerian comedian. Instead, follow the advice in this song:

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
07.03.23
by

Still a Chunky Stew: California’s ABC Test Survives Supreme Court Challenge

The song “Rock & Roll Stew” was released by Traffic as a single, off its excellent 1971 album, The Low Spark of High Heeled Boys. The stew is a reference to the messy life of playing gigs in clubs around the world. (This stew, of course, refers to the meal, not the anthropomorphic similar-sounding Stu, as referenced in Led Zeppelin’s “Boogie with Stu,” with this Stu being a real person, namely Ian Stewart, who was the Rolling Stones’ road manager and piano player and who sat at the keyboard one day to help Jimmy Page tune his guitar, a collaboration that resulted in this mostly improvised song, which is catchy and fun.)

Stew, according to allrecipes.com, is like a soup but chunkier. When making a stew, you can toss in meats and vegetables and whatever else you’re trying to get rid of in your refrigerator to make room before you go to Costco.

A messy chunky stew also seems like a good description of California’s ABC Test, which seems straightforward enough at first but, in reality, is chock full of meaty exceptions, most of which seem completely arbitrary.

The exceptions to the ABC Test are laid out in California Labor Code sections 2776 through 2785. The structure of the California law goes basically like this: When determining if someone is an employee or an independent contractor, use the ABC Test except in a whole bunch of situations or professions or circumstances, in which you would not use the ABC Test. There are dozens and dozens of exceptions to the ABC Test, and you just about need a decision tree to figure them out. The lines that have been drawn to determine whether some of the exceptions apply can also be maddening to understand, and they too seem arbitrary.

In a case brought by Mobilize the Message LLC, some of these lines were challenged on the grounds that they violate the First Amendment.

More specifically, the argument was that the law creates two classes of canvassers and distributors of literature, with different outcomes depending on whether they are engaging in political speech. The law allows promoters of consumer goods and distributors of newspapers to be classified as independent contractors, but it subjects promoters of political campaigns to the ABC Test, making it much more likely that they would be deemed employees.

Mobilize the Message LLC argued that the law discriminated against political speech by imposing more substantial burdens on those who engage in it than those who do not.

In October 2022, the Ninth Circuit rejected the challenge, ruling that there was no First Amendment violation. The petitioner then sought review by the U.S. Supreme Court. But late last month, the Supreme Court declined to take the case.

That means the Ninth Circuit ruling will stand, and the ABC Test — with its arbitrary lines — lives another day, even if the law subjects workers engaging in political speech to a different set of rules.

The ABC Test remains a messy stew, chock full of meaty (and vegetable-y) exceptions. But businesses operating in California have no choice but to learn it and digest it, no matter how chunky and confusing the mystery meat may be.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
06.26.23
by

What if Everything You Knew…? DOL Targets Fall 2023 for New Independent Contractor Test

In school we all learned that the longest river is the Nile. But some say the Amazon is longer. In the atlas “Maps of Useful Knowledge” (1846), the Amazon was listed as 3200 miles and the Nile 2750 miles. The current U.S. Geological Survey shows the Nile at 4132 miles and the Amazon at 4000 miles. Brazilian researchers claim the Amazon is 4331 miles long and the Nile a mere 4258 miles.

So which is it, and how can it be changing? Apparently the controversy involves disputes over where the rivers start, where they end, and how to track changes in the rivers’ course.

Whatever you learned about the test for who is an independent contractor under the Fair Labor Standards Act is subject to change too.

Remember October 2022? Elon Musk completed a $44B deal to take over twitter. Germany took steps to legalize marijuana. And the DOL released a proposed new regulation to modify the independent contractor test.

The proposed rule received more than 50,000 comments. We’ve been speculating about when the DOL might issue a final rule.

We’ve now learned that the DOL is targeting this fall for release of the new rule. The latest version of the regulatory agenda lists August as the target release date. August may be a bit ambitious, but the fall seems likely. On June 9, a federal court of appeals granted a motion by the DOL for a 120-day stay in a pending lawsuit. The DOL asked for the stay to allow it time to release the new rule.

You can read more about the proposed rule here.

So it seems that whatever we know now about the length of the Nile River, the length of the Amazon River, and the independent comntractor test under the FLSA is subject to change. Hopefully we’ll know more about all three by sometime this fall.

We can be pretty sure the final rule will closely resemble the multi-factor balancing test released in October 2022. Businesses can plan accordingly by being proactive in assessing their relationships with independent contractors and taking steps to reduce risk now.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
06.19.23
by

No Need to Panic: NLRB’s Atlanta Opera Decision Unlikely to Have a Major Impact on Misclassification Disputes

Photo by Kilyan Sockalingum on Unsplash

As I wrote a few days ago in the BakerHostetler blog, The Bargaining Table…

The sky is not falling.

When the National Labor Relations Board (NLRB or Board) issued its Atlanta Opera decision on June 14, I read the decision. Then I read some of the commentary issued quickly by news outlets right after the decision dropped. I’m not sure whether all of those commentators read the actual decision. To those who think this decision will have any significant impact on independent contractor classification under the National Labor Relations Act (NLRA or Act), I disagree.

In Atlanta Opera, the Board purported to revise the test for determining employee status under the Act. The Board said it was overruling the 2019 SuperShuttle DFW case and readopting the FedEx II standard from 2014. But is there really any practical difference? I think not.

Click here to read the full story.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

2018_Web100Badge
 
05.15.23
by

Here’s a Visual Showing the Impact of Misclassification Claims

(Not this visual. Keep reading!)

Last week I was in Boston, spending time with many of my favorite people at our BakerHostetler Labor and Employment Group Retreat. I always enjoy spending time with the people in our other offices. They are wonderful, kind, smart, and a joy to be around.

As part of the programing, each practice team leader gave a six-minute TED-style talk. In my session about the Contingent Workforce Practice Team, I included a slide that I wanted share here.

We sometimes hear from companies that they don’t think they’re at risk for an independent contractor misclassification claim. They sometimes say, we’ve been doing it this way forever, and we haven’t been sued.

To that I would say, you mean you haven’t been sued yet.

Here’s what can happen when companies get sued for independent contractor misclassification.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
04.10.23
by

No Suction: The DOL Doesn’t Care About Your Arbitration Agreements with Independent Contractors

In Japan’s Aomori Prefecture, bald men compete annually in a Suction Cup Tug of War. In each round, two contestants attach suction cups to their heads and pull in opposite directions. The person whose cup detaches first is the loser.

The event is sponsored by the Tsuruta Hagemasu Association, which aims to shed positive light on male baldness. The Association’s website, which I cannot read because it is Japanese, includes several hilarious/serious photos, including one of six elderly gents with flags suction cupped to their heads. Only the guy on the far right seems to be in on the joke. The others seem deadly serious about what their heads can do.

Using your head to win is not unique to the Suction Cup Tug of War. Well, maybe it is unique to the Suction Cup Tug of War if we take that in the most literal way, but now I’m straying into the figurative so that I can transition from something absurd to something topical.

Using your head to win independent contractor misclassification disputes often involves relying on individual arbitration agreements, which can help to prevent class action lawsuits. But the DOL is using its head too, and it’s pulling in an opposite direction. When the DOL pulls against your individual arbitration agreements, the DOL is going to win. The arbitration agreement will lose its stickiness.

Recent DOL news releases have highlighted the Department’s success in prosecuting misclassification cases, even when the target company had its independent contractors sign arbitration agreements. The DOL, in other words, doesn’t care about your arbitration agreements. The DOL is not a party to those agreements, and the DOL isn’t bound by them.

While an individual contractor can waive the right to file a lawsuit, the DOL is not waiving that right. The DOL can — and will — bring misclassification claims against companies that use arbitration agreements. I’m not suggesting that having arbitration agreements makes businesses a target for enforcement; I have seen no evidence of that. My point is just that arbitration agreements have their weak points, and the major weak point is that they do nothing to prevent a government agency, state or federal, from conducting an audit or bringing an enforcement action.

The US DOL, state labor departments, state unemployment agencies, and state and federal tax services have all made misclassification an enforcement priority.

Businesses should keep using arbitration agreements with their independent contractors, but be aware that these agreements do not protect against all mass enforcement activity. The stickiness of these agreements is useful, but when the DOL pulls in the opposite direction, the suction cup is probably coming off your head.

For those of you wishing you could have been there, here’s a video of the 2023 Suction Cup Tug of War. After some bizarre preliminaries, including tournament officials and a young girl throwing wet paper rectangles at the competitors’ heads, the thrilling tug of war action begins at about 1:20 into the clip.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
03.26.23
by

You Get What You Need: Prop 22 Upheld, and It’s a Model Other States Should Follow

The Rolling Stones’ song, “You Can’t Always Get What You Want” features the London Bach Choir and addresses the predominant themes of the 1960s — love, protest, and drugs. There’s some controversy as to whether Mr. Jimmy refers to vagrant Minnesotan Jimmy Hutmaker, who supposedly uttered the famous lyric-to-be during a chance 1964 encounter with Jagger at Bacon’s Drugstore, or Jimmy Miller, a record producer who also played drums on this track instead of Charlie Watts.

“You Can’t Always Get What You Want” is also a suitable theme for the main problem that dominates every aspect of independent contractor misclassification. The problems is that the laws are binary. A worker is either an employee who receives all of the protections of employment laws, or an independent contractor, who receives none. The exceptions creating a middle ground have been sparse.

But if you try sometimes.

California voters tried and succeeded in creating a middle ground in 2022, when they passed Prop 22. Prop 22 guarantees independent contractor status for rideshare and delivery drivers if a series of conditions are met, and then the app companies are required to provide a range of protections for drivers, including minimum rates of pay, a health insurance stipend, accident insurance, sexual harassment prevention, safety training, and rest requirements.

Prop 22 was and is a model for the middle ground that has been missing.

But Prop 22 has also been under attack. In a case called Castellenos, the SIEU and other worker advocates have argued that Prop 22 violates the California constitution and had to be invalidated. Without Prop 22, rideshare and delivery drivers could be subjected to California’s ABC Test for determining drivers’ status.

As you may have read, a California Court of Appeals ruled earlier this month that Prop 22 did not violate the California Constitution and could take effect, except for one small part of the law governing future amendments. The dispute will likely be heard by the California Supreme Court, so the fight isn’t over.

The point I want to make, though, is that Prop 22 carves out a middle ground that should be a model for other states to follow. It guarantees workers certain protections while allowing them to operate their own businesses as independent contractors.

The unions and worker advocates calling for the protection of worker rights routinely ignore the surveys showing that a vast majority of drivers prefer independent contractor status. Much of the noise on this issue is coming from a vocal minority.

The Prop 22 model is a middle ground that provides workers with protections they otherwise lack, while allowing workers to retain their preferred independent contractor status and flexibility.

We’ll continue to watch whether the California Supreme Court decides to hear this dispute but, either way, Prop 22 should be held up as a model for other states to follow, carving out a middle ground that balances the concerns of all sides. Worker status does not have to be binary. Binary laws that mandate employee or independent contractor status, with no middle ground, do not reflect the realities of the modern gig economy.

It’s time for reform.

You can’t always get what you want. But if you try sometimes, well, you just might find, you get what you need.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
03.26.23
by

You Get What You Need: Prop 22 Upheld, and It’s a Model Other States Should Follow

The Rolling Stones’ song, “You Can’t Always Get What You Want” features the London Bach Choir and addresses the predominant themes of the 1960s — love, protest, and drugs. There’s some controversy as to whether Mr. Jimmy refers to vagrant Minnesotan Jimmy Hutmaker, who supposedly uttered the famous lyric-to-be during a chance 1964 encounter with Jagger at Bacon’s Drugstore, or Jimmy Miller, a record producer who also played drums on this track instead of Charlie Watts.

“You Can’t Always Get What You Want” is also a suitable theme for the main problem that dominates every aspect of independent contractor misclassification. The problems is that the laws are binary. A worker is either an employee who receives all of the protections of employment laws, or an independent contractor, who receives none. The exceptions creating a middle ground have been sparse.

But if you try sometimes.

California voters tried and succeeded in creating a middle ground in 2022, when they passed Prop 22. Prop 22 guarantees independent contractor status for rideshare and delivery drivers if a series of conditions are met, and then the app companies are required to provide a range of protections for drivers, including minimum rates of pay, a health insurance stipend, accident insurance, sexual harassment prevention, safety training, and rest requirements.

Prop 22 was and is a model for the middle ground that has been missing.

But Prop 22 has also been under attack. In a case called Castellenos, the SIEU and other worker advocates have argued that Prop 22 violates the California constitution and had to be invalidated. Without Prop 22, rideshare and delivery drivers could be subjected to California’s ABC Test for determining drivers’ status.

As you may have read, a California Court of Appeals ruled earlier this month that Prop 22 did not violate the California Constitution and could take effect, except for one small part of the law governing future amendments. The dispute will likely be heard by the California Supreme Court, so the fight isn’t over.

The point I want to make, though, is that Prop 22 carves out a middle ground that should be a model for other states to follow. It guarantees workers certain protections while allowing them to operate their own businesses as independent contractors.

The unions and worker advocates calling for the protection of worker rights routinely ignore the surveys showing that a vast majority of drivers prefer independent contractor status. Much of the noise on this issue is coming from a vocal minority.

The Prop 22 model is a middle ground that provides workers with protections they otherwise lack, while allowing workers to retain their preferred independent contractor status and flexibility.

We’ll continue to watch whether the California Supreme Court decides to hear this dispute but, either way, Prop 22 should be held up as a model for other states to follow, carving out a middle ground that balances the concerns of all sides. Worker status does not have to be binary. Binary laws that mandate employee or independent contractor status, with no middle ground, do not reflect the realities of the modern gig economy.

It’s time for reform.

You can’t always get what you want. But if you try sometimes, well, you just might find, you get what you need.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
03.20.23
by

Could California’s AB 5 Get Cut Off? Ninth Circuit Ruling Keeps Case Alive

When I hear the name Lorena, my mind automatically goes back to 1993, which is probably true for many men about my age. That’s the year when Lorena Bobbitt brought a kitchen knife into the bedroom and cut off her husband John’s member while he was sleeping. She then tossed it in a field near the house, alerted police where to find it, and became an overnight celebrity for having taken revenge after years of alleged domestic abuse.

John later tried to cash in on the detachment, forming a band called The Severed Parts and appearing in two pornos called John Wayne Bobbitt Uncut and Frankenpenis.

It was a different Lorena who grabbed headlines last week, when the Ninth Circuit Court of Appeals considered whether it’s unconstitutional to pass a law because of personal animus.

The law is California’s AB 5, and the Lorena is former California assemblywoman Lorena Gonzalez. As a quick refresher, AB 5 is the California law that imposed a hard-to-satisfy ABC Test for determining independent contractor status. Lorena Gonzalez, a driving force behind the bill, was vocal in her animus toward rideshare and delivery app companies.

In Olson v. California, the rideshare and delivery app companies sued to invalidate AB 5, arguing that the law contained dozens of exceptions targeted toward a grab bag of industries, and their exclusion from the list of exemptions was due to animus toward them, rather than reason.

This might have been a hard argument to make, but for Lorena. Congresswoman Gonzalez made frequent public statements against rideshare and delivery companies, claiming they mistreated workers by not classifying them as employees. Gonzalez said she was open to including exceptions in the bill, but not for these companies. The legislature then passed an exemption for other referral-based app businesses, but not rideshare or delivery, even though the business models are basically the same. A few other vocal lawmakers joined Gonzalez with similar public statements targeting the rideshare and delivery app companies. It’s the old familiar “[insert name] said the quiet part aloud” story.

Last week the Ninth Circuit ruled that personal animus is not a legit reason to pass a law. The Court wrote, “We are persuaded that these allegations plausibly state a claim that the ‘singling out’ of Plaintiffs effectuated by A.B. 5, as amended, fails to meet the relatively easy standard of rational basis review.” The Court was referring to the standard used for evaluating equal protection claims under the Constitution. It does not advance a governmental interest to pass a law out of a desire to harm a politically unpopular group of citizens.

The Court’s ruling did not overturn AB 5. The ruling sent the case back to the district court, which will have to reopen the case against AB 5.

For now the law remains in effect, and there is no immediate impact to businesses in California. But the fight to overturn AB 5 has fresh legs and some momentum.

In other words, businesses in California are still subject to the ABC Test — unless you’re a licensed insurance business or individual, physician, surgeon, dentist, podiatrist, psychologist, veterinarian, lawyer, architect, engineer, private investigator, accountant, registered securities broker-dealer or investment adviser, direct sales salesperson, commercial fisherman working on American vessels for a limited period, marketer, human resources administrator, travel agent, graphic designer, grant writer, fine artist, payment processing agent, still photographer or photo journalist, freelance writer, editor, or cartoonist, licensed esthetician, electrogist, manicurist, barber, cosmetologist, real estate licensee, repossession agent, recording artist, songwriter, lyricist, composer, proofer, manager of recording artists, record producer or director, musical engineer or mixer, vocalist, musician engaged in the creation of sound recording, photographer working on recording photo shoots or album covers, independent radio promoter, newspaper distributor working under contract with a newspaper publisher, newspaper carrier working under contract either with a newspaper publisher or newspaper distributor, contracting party in certain types of business-to-business relationships, or referral agency other than for rideshare or delivery — all of which are subject to possible exemptions.

And so you can see the point. The exemptions are a mishmosh created by special interests and lobbying efforts, with no coherent overall theme — except to make sure rideshare and delivery apps are subject to the ABC Test.

We’ll continue to follow this case. Meanwhile, if you’d like to read more about the original Lorena and the incident, there’s a Lifetime movie, an Amazon docuseries, and a whole bunch of articles.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge