California’s AB 5 Has Been Repealed, Sort Of.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On Friday, a new law repealed and replaced it.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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Do Not Break Glass: Arbitration Clauses May Shatter in Agreements with Independent Contractor Delivery Drivers

largest-glass-blown-sculpture

Photo: CGTN/CFP

When your kids were little, did they ever run around in places they shouldn’t, causing you to fear what would happen if they broke something? Well you’re not alone. The world’s largest glass-blown sculpture sits in a museum in Shanghai. At least it did until recently. On May 30, two children accidentally broke it while running through the museum playing. There was a protective belt to try to prevent this sort of thing, but the kids ran right through it.

The moral of the story is that protective belts are not always good enough. The same is true when it comes to independent contractor agreements. One of the most useful protective belts we can install to protect against misclassification claims is a well-drafted arbitration clause with a class action waiver. That forces any independent contractor who claims to be an employee to fight that battle on an individual basis in front of an arbitrator. No court, no class action.

But this protective belt doesn’t always work, especially in the transportation industry.

Arbitration agreements with class action waivers work well in most industries. Under the Federal Arbitration Act (FAA), these agreements are generally enforceable, and they’ve saved many a large company from having to face gigantic misclassification class actions.

But the FAA has an exception. It doesn’t apply to transportation workers engaged in interstate commerce. There’s been lots of litigation over what that means and how broad the exception is.

A pair of decisions last week tried to address this question with respect to last-mile delivery drivers.

Both cases assumed the last-mile drivers were transportation workers engaged in interstate commerce, even though they generally did not cross state lines.  (We don’t know how the US Supreme Court would rule on that question). Since the FAA did not apply, the question then became whether the arbitration clauses and class action waivers were enforceable under state law.

Two courts, two cases, and two states resulted in two very different outcomes.

The New Jersey Supreme Court ruled that arbitration agreements with delivery drivers are enforceable under New Jersey Arbitration Act, even if not under the Federal Arbitration Act (FAA).

But a federal appeals court took the opposite view of the same issue under Massachusetts law, ruling that a class action waiver in an arbitration clause is void because it is contrary to Massachusetts public policy.

So what does this mean for companies who use independent contractors in the transportation industry?

Depending on the facts and the court, the FAA might or might not apply. If the FAA does not apply, the question of whether the arbitration clause and class action waiver can be enforced will depend on state law.

That means companies need to be very careful in drafting their choice of law provisions and their severability clauses. If parts of the arbitration clause are unenforceable because of the class action waiver, will the whole clause be cut or just the class action waiver? If a court severs only the class action waiver, could you end up in class arbitration? The contract should also anticipate that possibility, and the arbitration clause should contain language prohibiting the arbitrator from hearing a class action. The effect of that clause would be to force the class action back to federal court. Most companies, if faced with a class action, would prefer to defend class claims in court rather than in arbitration.

These two cases highlight the importance of considering these issues when drafting independent contractor agreements in the transportation industry. While different state laws may lead to different outcomes, your contract should plan for the worst and be written to protect against the least desired outcome.

And if you are put in charge of security at a museum, try a better protective belt.

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

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Silver Linings? DOL Looks to Adopt New Independent Contractor Test Before Year End

canoe

The past few months have included many silver linings — more family time, a Lake Michigan vacation, and professional cornhole on TV. I’ve also learned new things — governors have more power than I thought, remote work is more doable than many of us thought, and there’s such a thing as professional cornhole.

Now the Department of Labor wants us to learn something new too — about independent contractor status. (Too many long dashes so far? I’m flagging myself for excessive use.)

Last week the DOL published a notice that it intends to fast-track a new regulation covering the test for independent contractor vs employee under the Fair Labor Standards Act.

What would that test look like? The DOL gave no hints, but here is my educated guess.

The test for independent contractor status under the FLSA is an Economic Realities Test.  That is a court-created test, it’s well-established, and it’s not likely to change. If the DOL did try to change it, I don’t think the courts would follow the new regulation anyway. So the DOL is going to have to work more around the edges.

I expect the regulation to define more precisely the factors to be taken into account under the Economic Realities Test. Right now, different courts use different versions of it. Some uniformity would be helpful.

I also expect some examples to help illustrate how the factors should be applied. Look for sample fact patterns that seem like close calls but perhaps would be deemed supportive of independent contractor status under a new DOL interpretation.

We can expect the DOL will gently place its fingers on the scales, making it a bit easier to maintain independent contractor status under the FLSA. Don’t expect a full rewrite of the test.

The DOL will want to implement the new rule quickly, in case a new administration takes over in January. Look for a proposed regulation shortly, a quick public comment period, and a new regulation on the books late this year.

Hopefully by the time we see a final rule, we can watch real sports on TV and demote cornhole to livestream only. That way both people who care could still watch.

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

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New Seattle Sick Pay Law for Gig Workers: Squishy or Full of Venom?

jellyfish

Horrifying images not intended to scare children. Thanks, PBS Learning.

I learned this week that a species of jellyfish found off the coast of China, Japan, and Korea can weigh up to 440 pounds. There’s a video here, and the size of this thing is terrifying.

In Finding Nemo, I learned that you can bounce on the fleshy heads of jellyfish without getting stung, and this creature has an abundantly fleshy head. The tentacles, though, are a different story. There are a lot of them. So the lesson here is that when approaching a Nomura’s Jellyfish, as they are called, be thoughtful in how you approach.

Which brings me to the City of Seattle. Seattle has been relentless in looking for ways to provide gig workers benefits of some kind, without getting caught up in the Independent Contractor vs. Employee question. The city has been aiming to grant gig workers certain rights, whether they are employees or not.

Seattle’s strategy is to aim for the jellyfish’s head, not wanting to get caught up in the tentacles of a dispute over whether the gig workers are employees or not.

In its latest head shot, Seattle has enacted an ordinance requiring transportation network companies and food delivery network companies (app based) to provide paid sick time to gig workers who perform services in Seattle. The requirement applies regardless of whether the workers are contractors or employees. The law was signed on June 12, 2020.

This move may signal a new strategy for states and localities that wish to provide benefits to gig workers. They can require benefits for gig workers, regardless of whether the workers are deemed employees.

This approach, if it works, may introduce other problems for app-based companies.

If companies start providing benefits such as paid sick leave to workers they consider to be independent contractors, that fact could be used against them as evidence the workers are being treated as employees.

In other words, this ordinance sets a trap. App-based companies will still be able to argue that they are providing sick leave only because they are required by local law, but surely the plaintiffs’ bar will argue that providing sick leave is evidence of employment status.

It’s a dangerous game, trying to bounce of the heads of the squishies while avoiding the sting. We’ll see how it plays out. In the meantime, obey beach hazard signs and try to avoid getting stung.

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

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NSFW? Not Quite. But 18 States Say DOL’s New Joint Employment Rule Is Inappropriate.

Zippy Michigan

Zippy sunbathes in the nude.

Some things sound inappropriate, but they’re not. For example, I sometimes post naked pictures on my blog. But only of my dog. She’s immodest and doesn’t seem to mind. (Her fur coat doesn’t count.) So, you see, that’s not inappropriate.

What about the DOL’s new joint employment test, which went into effect in March? Was that inappropriate? Eighteen Democratic state attorneys general seem to think so, and they’ve filed a federal lawsuit to try to undo the rule. For those of you keeping score at home, they claim the new rule violates the Administrative Procedures Act and is not consistent with the Fair Labor Standards Act.

Last week, a federal judge in New York rejected the DOL’s motion to dismiss the lawsuit, meaning the case moves forward. The DOL argued that the states lacked standing to challenge the new rule. Lack of standing means they can’t sue because they’re not harmed by the new rule.

But the judge found that the states “plausibly alleged” that they have standing to sue. He noted that the new rule could reduce the total amount of wages paid to employees in their states, which could lead to a reduction in tax revenues. The loss of tax revenues and the anticipated increased expense in enforcing state wage and hour laws would be enough. The states can proceed.

The ruling does not address whether the lawsuit has any merit, just that it may proceed.

While no one would claim the new rule is NSFW, these states argue that the content of the new rule and the way it was passed was inappropriate. But like the naked photo above, you need to see the full picture before drawing any conclusions about what’s proper and what’s not. 

For now, the DOL’s new rule remains in effect.  That means it’s more difficult to establish joint employment than it was before. It’s also difficult, by the way, to get a dog to wear a hat. But we did it. And Zippy looks ready for college football season. 

© 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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Better Flow? Will New Bill Allow More Benefits for Independent Contractors — Without Risking Misclassification Claims?

toilet gig workers plumberA Sheboygan man was recently sentenced to 150 days in jail and probation for repeatedly clogging women’s toilets with plastic bottles. According to the Sheboygan Press, the serial toilet clogger told police he gets urges to do odd things, like look for bottles in the garbage to plug toilets.

I get urges to do odd things too, like scour local newspapers for stories like this one. But since I’m sharing this important knowledge with readers, I figure it’s for the greater good. (Repeat:) For the greater good. (See Hot Fuzz, my nominee for best movie ever.) 

Two recently introduced bills in Congress seek to protect the greater good when it comes to gig workers. In the current legal environment, digital marketplace companies are reluctant to do anything to provide assistance to independent contractors who use their platforms, since courts and agencies tend to use such good deeds as evidence that the contractors should really be classified as employees. For digital marketplace companies that rely on an independent contractor model, such a finding can cause serious damage to normal business operations — even worse than the mess caused by an overflowing bottle-clogged ladies’ toilet.

The Helping Gig Economy Workers Act of 2020 would permit digital marketplace companies to provide payments, health benefits, training, and PPE to users of the digital marketplace without these good deeds being used as evidence — in any federal, state, or local proceeding — that the company has misclassified its independent contractors or is acting as a joint employer. The bill would protect companies throughout the duration of the COVID-19 crisis.

The bill is co-sponsored in the House by Rep. Carol Miller (R-WV) and Rep. Henry Cuellar (D-TX), with a companion bill sponsored by four Republicans in the Senate.

Historically, Democrats have opposed any legislation that would solidify independent contractor status for workers, instead advocating for bills that would convert more contractors to employees. Will the COVID-19 crisis be a turning point?

With independent contractor delivery services needed now more than ever, will there be a push to allow companies to provide greater protection for these workers without fear that their good deeds will be used against them in a misclassification claim?

That remains to be seen. If this bill gains any momentum, it could be the equivalent of pulling a bottle out of the clogged toilet of independent contractor misclassification laws. (I concede the analogy is a stretch, but I’m doing my best here.)  This bill could signal a shift toward a philosophy of promoting greater benefits for independent contractor gig workers, rather than aiming solely to convert them all to employees. I’m not sure it will, but it might. This is one to watch.

© 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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Take a Hike? Not This Time. CARES Act Offers Unemployment Help for Gig Workers

61C63C40-A3B8-41A8-A458-1545EB3168E8While coyotes invade San Francisco and wild boars torment Barcelona, things are a bit quieter here in Cleveland.

Last weekend, I took a few hours off from the nonstop advising on all things COVID-19 and went on a hike with my family at Cuyahoga Valley National Park, about half an hour from my house.

But then it was back to work, and back to keeping up on all the latest COVID-related legal developments, and there are a lot. One item of note for independent contractors and gig workers is the new CARES Act, passed earlier this week.

While unemployment insurance coverage traditionally has not been available for independent contractors, the CARES Act makes it possible for self-employed contractors to obtain coverage.

Hopefully this is a small first step toward allowing independent contractors to obtain more benefits without converting them to employees. The binary system we have — either you’re an employee or an independent contractor — generally means all or nothing. That’s why so many state legislators are trying to convert contractors to employees — so these workers can receive benefits and other protections that the law provides to employees but not to contractors.

There’s a better way, such as the path forward proposed by five gig economy companies in California, with a measure that hopefully will appear on the November 2020 ballot.  (You can read more here.)  We need a middle ground that allows self-employed contractors to remain contractors, while allowing them to obtain some of the benefits that employees receive.

The trail I went on last weekend was a loop. It ended right back where it started. Hopefully the CARES Act is a small step in a new direction, and we can move away from the binary legal choice we’ve been stuck with for decades.

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

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