“Maybe Later”: California Legislature Declines Business Community’s Request to Fix ABC Test

California ABC Test legiuslative efforts fail 2018

Peter Gabriel’s 1986 album, So, includes the song “Don’t Give Up.” It is a mournful duet with Kate Bush that must not be included on anyone’s workout playlist. The blend of an inspirational title and weepy output, though, seems appropriate for this post.

Today we’re following up on the state of independent contractor misclassification in California, five months after the Dynamex decision and its contractor-hatin’ ABC Test.

This summer, in response to Dynamex, California businesses that rely on independent contractor gig workers engaged in a coordinated effort to persuade the California legislature to suspend the Dynamex ruling and to reinstate a common sense balancing test for determining Independent Contractor vs. Employee.

For now, they have failed.

California’s 2018 legislative session just ended. The Democratically controlled Assembly and Senate declined to consider any legislation that would affect the Dynamex ruling and its new ABC Test.

In a recent interview with California’s Capital Public Radio, three weeks before the legislative session closed, Assembly Speaker Anthony Rendon admitted that he is a much weaker hitter than the Washington Nationals third baseman who shares his name and has 19 more home runs this year than the Speaker. (Actual quote unavailable.) But, more relevant to this post, Rendon also said that there would be no action this year on legislation to define Who Is My Employee?

“Ultimately, this decision is about the future of the way work looks. And that requires us to be thoughtful and deliberate,“ Rendon said. “And there’s no way we can be thoughtful and deliberate in three weeks.”

Senate President pro tem Toni Atkins, who may or may not have been in the late-80s-early-90s soul/R&B group Tony! Toni! Toné!, expressed similar sentiments: “The California Supreme Court voted unanimously for this new test. I agree with Speaker Rendon that forging any legislative review or response to their decision in just three weeks isn’t workable.”

Let’s break that down.

When my oldest daughter was little and didn’t want to do something, she developed a polite way of saying “no f-ing way.”  She’d say, “Maybe later.”  We all knew what that meant.

I am hearing the same thing from Rendon and Atkins when they say that three weeks wasn’t enough time to draft new legislation. All they had to do was reinstate the status quo before Dynamex, which was a well-established balancing test for determining whether someone is an employee or an independent contractor.

But instead they gave us the legislative equivalent of “maybe later.” I won’t be putting that on my workout playlist either. And it’s not gonna get worked out any time soon. The ABC Test in California is here to stay. (Cue weepy mournful background music.)

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Does California’s ABC Test Violate Federal Law? Truckers Sue, Saying It Does

Trucker Dynamex ABC Test California

The 1976 song, Convoy, is about a fictional trucker rebellion, protesting the 55 mph speed limit, tolls, and mandatory log books to ensure that drivers limit their hours. The song is full of trucker slang and includes CB conversations among Rubber Duck, Pig Pen, and Sodbuster. The truckers crash road blocks and flee the police and reinforcements from the Illinois National Guard. Here’s a fun little article about how this truckers’ protest anthem became a hit single.

The truckers are protesting again.

On July 19, the Western States Trucking Association filed a federal lawsuit, alleging that the California Supreme Court’s new ABC Test (set forth in the Dynamex case) for Continue reading

Court Expands Use of ABC Test in California, Commits Candy Land Party Foul

Dynamex ABC Test Candy Land

Suppose you are dominating an important game of Candy Land, having picked the orange card first, which gave you the privilege of taking Rainbow Trail across half the board to a distant purple square, leaving your toddler opponent in tears, whining, “No Fair!” Well, your toddler would be wrong since that was perfectly fair and within the rules. But you feel bad for young Timmy and so you allow him to change the rules mid-game so that no one can use Rainbow Trail, forcing you to plod slowly across all the regular squares, bored to tears because this stinking game takes forever.

Sometimes we make exceptions for bratty toddlers, but in real life it’s no fair to change the rules in the middle of the game. You may have built your entire Candy Land strategy around trying to pick the Orange square card first. It’s not fair to block you from Rainbow Trail after the game has started.

The same is true in business. Businesses hire employees or retain independent contractors according to the rules in place when they make those decisions.

An important ruling last week threatens to change the Independent Contractor vs. Employee rules midway through the game — but this is no game.

Continue reading

Do ABC Tests Matter if my Business is not in California? (Yes!!!)

ABC Test Califoirnia Dynbamex Massachusetts other states

According to Michael Jackson and his brothers (don’t forget Tito), ABC is easy as 1-2-3, and it’s also easy as do-re-mi. According to Julie Andrews, in Do-Re-Mi, once you know the notes to sing, you can sing most anything. This is not technically true, as once demonstrated by William Hung.

ABC may sound easy, and some people might think they can sing anything.  But actual compliance with ABC Tests is not easy — and yes, every business needs to think about how it would comply with ABC Tests. (For background on What is an ABC Test?, read here and here.)

ABC Tests are not just in California. Massachusetts uses an ABC Test to determine who is an employee under state wage law. New Jersey uses an ABC Test to determine whether someone is an employee or independent contractor for state wage law. Unemployment too.

For unemployment purposes, lots of states use ABC tests to determine whether someone seeking unemployment coverage was your employee or an independent contractor. These states include Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Vermont, Washington, and West Virginia. There are more but I started prioritizing my list by number of electoral votes.

Because ABC Tests are stricter than ordinary balancing tests (like Right to Control or Economic Realities tests), your company may be required to make unemployment contributions for individuals who are independent contractors under most laws but are employees under your state’s unemployment compensation law. You could owe back assessments and penalties for failing to pay into the state unemployment insurance fund.

New York, Pennsylvania, and D.C. use ABC Tests for work performed in the construction industry.

Some states use even tougher multi-factor tests to determine whether an individual presumed to be an independent contractor is really an employee. Maine has an ABCDE Test, meaning each of five factors must be met (plus another 3 from a list of 7, creating a veritable menu of family-style Chinese take-out for misclassification). New Hampshire uses an ABCDEFG Test to determine whether someone is an employee subject to its workers compensation and wage and hour laws.

Congressional Democrats, including Bernie Sanders and his hair, have introduced a bill that would use an ABC Test to determine whether someone is an employee under the NLRA. The bill has no chance to become law unless (until?) the Democrats control both houses of Congress and the Presidency, but for now, it’s worth noting that there is a desire among some lawmakers to adopt sweeping changes to the definition of employee.

The point is that ABC tests are prevalent already — and they are expanding. The California decision adopting an ABC Test was issued three years after the New Jersey Supreme Court adopted a similar (but less stringent) ABC Test for its state wage and hour laws.

With more state legislatures and state supreme courts considering changing the tests, we can expect this trend to continue. We can expect more states to adopt ABC Tests, especially in states where the courts (like in California) make up ABC Tests without legislative input. For a legislature to pass an ABC Test, it takes some work, bicameral support, and usually the signature of a governor. For courts to make up new ABC Tests, however, it’s easy as 1-2-3, do-re-mi.

Business should be thinking proactively about whether their contracts, relationships, and public-facing statements (such as in websites) will allow them to support independent contractor status when an ABC Test is used to determine WhoIs My Employee?

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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California’s New Killer Bee: How Should Businesses Deal with Part B of California’s New Independent Contractor Test?

California ABC test Dynamex Killer Part BAccording to pestworld.org, Africanized honey bees have been known to chase people for more than a quarter mile once they get excited and aggressive. This is why they earned the nickname “killer bee.”

In its recent Dynamex decision, the California Supreme has introduced its own Killer B into California wage and hour law. This new Killer B could make plaintiffs’ lawyers excited and aggressive, chasing down businesses that use independent contractors and filing lawsuits alleging they are really employees. Those lawsuits could really sting!

Today we look at two questions: What is the new Killer Part B, and what do businesses need to know about it?

What’s the Issue?

Several states now use ABC Tests to determine whether a worker is an employee or independent contractor, at least under certain state laws. California joined the party with its 4/30/18 Supreme Court decision (Dynamex), adopting an ABC Test to determine who is an employee under most of California’s wage and hour laws.

Part B of the new California test can be difficult to meet. To be a true independent contractor, the worker must be performing work that is outside the hiring party’s “usual course of business.” We’ll call this a Strict ABC Test.

Some states have a more forgiving version of an ABC Test, allowing Part B to be satisfied if the worker performs the services either outside the usual scope of business or off of the hiring party’s premises. New Jersey, Illinois, and Connecticut use the more forgiving test. We’ll call that version the Standard ABC Test.

What’s the Concern with Part B in California’s New Test?

Part B can be hard to meet.  Lots of workers who are otherwise independent contractors will be considered employees because of Part B — especially under a California-style Strict ABC Test. If the type of services being provided are within the hiring party’s “usual course of business,” the worker must be treated as an employee under California’s wage orders.

Although this Strict ABC Test is new to California employers, it’s not new to multi-state employers. Massachusetts has been using a Strict ABC Test for its wage and hour laws since 2004, when it passed the Massachusetts Independent Contractor Law. In 2008, the Massachusetts Attorney General’s Office issued an advisory memo on its interpretation of the law, especially Part B.

What Can We Learn From Massachusetts?

The key to success under Part B is establishing that the contractor’s services are outside of the “usual course” of your business. That means the contractor does something that your business doesn’t do.

Companies should consider taking steps to define more precisely its “usual business,” and then memorialize that in multiple ways — internally, externally (website: About Us page?), and contractually in agreements with independent contractors.  Keep in mind the importance of differentiating between the scope of what your business does and the scope of what the independent contractor will be doing.  If you want to satisfy Part B, these things should be different.

You may need to define the scope of your services more narrowly. For example, if your business sells appliances but retains independent contractors to install them, you might take steps to define the scope of your business as “selling appliances but not installing them.” Consider adding language to your contracts, website, and other documents to make this distinction clear.

This is just one of many strategies that businesses in California and Massachusetts should be prepared to implement. Being proactive is the key to avoiding claims of independent contractor misclassification. Evaluate and modify your independent contractor relationships and contracts now, not after you have been sued.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What is California’s new ABC Test, and What Does It Mean for Businesses?

Dynamex ABC test california

What just happened?

Last week, we reported here on the California Supreme Court’s Dynamex decision. Today’s post takes a deeper dive.

In Dynamex, the California Supreme Court adopted one of the strictest tests in the nation for determining whether a worker is an employee or an independent contractor. The new test is used to determine whether a worker is an “employee” under California’s Industrial Wage Commission (IWC) wage orders. The wage orders require “employees” to be paid minimum wage and overtime, and to receive meal and rest breaks (unless exempt). Under this new test, a lot of independent contractors might now be “employees.”

The new test is an ABC Test. Unlike the balancing tests that start with the scales set equally, the new Dynamex ABC Test begins with the presumption that any worker performing services for your business is your employee. Guilty until proven innocent.

To overcome that presumption, the business must meet all three prongs of the new ABC Test. To prove that the worker is an independent contractor (and that the California wage orders do not apply), the business must be able to show:

(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.

If the business fails to meet all three prongs of this test, the worker is an employee for purposes of the wage orders. Case closed. Done deal. The other factors don’t even matter.

What does that mean? You must provide the worker a minimum wage, overtime, and meal and rest breaks (subject to exemptions, if applicable). It doesn’t matter that you have an Independent Contractor Agreement, and it doesn’t matter if the worker agrees to be an independent contractor status. (Here’s why.)

What was the basis for the California Supreme Court’s decision?

The Court’s decision was based on its analysis of the definition of “employ” under the IWC wage orders. The Court concluded that this definition was intended to cover a broader range of relationships than common law employer-employee relationships.

The wage orders define employ as “to engage, suffer, or permit to work.” This language originated in 1916, with the passage of state laws designed to prevent the exploitation of child laborers. The idea was that if you allow children to work for you, you are going to follow certain legal requirements. To prevent funny business, an intentionally broad definition of “employ” was used.

Those familiar with the federal Fair Labor Standards Act (FLSA) will recall that it too uses a broader definition of “employ” than most other federal laws. The FLSA definition of employ is “to suffer or permit to work.” That sure sounds a lot like the California definition, so shouldn’t California just apply the same Economic Realities Test as used to determine whether someone is an employee under the FLSA? Oh, my dear sweet naive friend, that would be too simple. And California doesn’t like simple.

The California Supreme Court went out of its way to point out that California came up with its language first and that it never intended to follow the FLSA test. Really, it says that. So there.

In Dynamex, the California Supreme Court concluded that where the definition of “employ” is “to engage, suffer, or permit to work,” the intent is to cover a broader range of individuals than common law employees and, from now on, the way to determine whether someone is an “employee” under the “engage, suffer, or permit to work” standard is to apply the new ABC Test. The IWC wage orders use this broad definition, and so the wage orders will now apply to any relationship where an individual provides services, unless all three prongs of the ABC Test are met.

But why change now?

If you are asking yourself why the test would change now — when that same definition has been in place for 102 years, when there has been no new law passed by the California legislature, and when no new regulations have been enacted — the answer is what you tell your kids when you’re too tired to explain why: Because I said so.

Really. The Court just said so. Nothing in the law has changed. The new, strict ABC Test did not come from a new law. It came from Massachusetts. Thank you, Massachusetts. Next time just send lobster rolls.

What about the other wacky California employment laws?

Most California employment laws use a more traditional definition of employee, not the broad “engage, suffer, or permit to work” definition. Under these other laws, therefore, the test for determining whether someone is an employee is (we think) unchanged. For the most part, the S.G. Borello test should continue to apply.

The S.G. Borello test stems from a 1989 California Supreme Court decision and is a hybrid Right to Control/Economic Realities balancing test.

Under S.G. Borello, the primary question is whether the hiring party retains the right to control the worker, both as to the work done and the manner and means in which it is performed. If yes, the worker is an employee. If it is unclear, then secondary factors are considered.

Secondary factors include:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

The court or agency then mixes all of these factors into a witch’s cauldron, blends them together, sprinkles in a pinch of eye of newt, waits for the smoke to clear, and then declares that, based on an analysis of the multiple factors, the worker must be an … (insert answer here). The S.G. Borello test is a balancing test, subject to interpretation. It’s gray.

California does have some other strict tests. The Dynamex ABC Test is not the only one. For example, strict tests apply in the construction industry and for the performance of work where a license is required but not obtained. Under those scenarios, like under IWC wage orders, it’s much harder to maintain independent contractor status than it is under a law that applies the S.G. Borello test.

What about federal laws? Do those still apply too?

Hahahahahahaha! You bet they do! Employers in California are still required to follow the FLSA, which determines whether someone is an employee by using an Economic Realities Test. Yes, lucky California business owners, this means your worker could be an employee under the strict ABC Test imposed by Dynamex and therefore subject to California minimum wage and overtime rules; but, at the same time, the same worker might be a legitimate independent contractor under the Economic Realities Test and therefore not subject to federal minimum wage and overtime law. Well that’s confusing.

Right to Control Tests govern the determination of whether someone is an employee under federal tax law, anti-discrimination law, and employee benefits law. As we discussed here, it’s certainly possible to be an employee under one law but an independent contractor under another law.

With the introduction of the strict Dynamex ABC Test, that will happen more often, ensuring full employment for lawyers like me.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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California’s Top Court Creates New Test for Independent Contractor vs. Employee, Re-Interprets 102-Year Old Definition

horse race dynamexA three-way horse race can be exciting. As the finish line gets closer, each horse seems to dig deeper and find a little extra something to try to pull ahead. (Or gets whipped. Whatever. Stay with me here.)

It’s been a nail-biter over the past several years, with California, New Jersey, and Massachusetts competing to see which state could create the most difficult test for maintaining independent contractor status in wage and hour cases. For years, courts have used an Economic Realities balancing test for determining Independent Contractor vs. Employee status under federal wage and hour law. Most states apply a variant of that test or apply a Right to Control Test for determining Who Is My Employee? under their wage and hour laws.

In 2004, however, the Plymouth Rockers surged ahead, passing a law that used an ABC Test to determine whether someone is an employee or an independent contractor under Massachusetts’ minimum wage and overtime laws. ABC Tests make it harder to prove that a worker is truly an independent contractor (and not an employee), as we’ll see in more detail below. In 2015, the Home of Bruce Springsteen pushed forward, with the New Jersey Supreme Court requiring businesses to Prove It All Night and adopting an ABC Test for its state wage and hour laws.

Poor California was left behind. (No Surrender?) The state that birthed the Eagles and Hotel California did not rewrite its wage and hour laws and did not adopt an ABC Test. Finding no help from the legislature, the California Supreme Court took it upon itself April 30th to whip the Golden State forward, creating a new ABC Test in its 82-page Dynamex decision.

Let’s be clear about what just happened:

  • There’s no new law.
  • There’s no new regulation.
  • There’s no new executive order.

In fact, the definition of “employ” that this decision is based upon has been the same since Year 4 of the Woodrow Wilson presidency.

But now, despite none of those things changing, there’s a new test — at least for wage and hour claims that are covered under California IWC wage orders.

An ABC Test sets a higher bar than a Right to Control Test or an Economic Realities Test. It also sets a higher bar than California’s S.G. Borello test, which is a hybrid Right to Control/Economic Realities Test that has been in place since 1989.

California’s new ABC Test starts with the presumption that, for claims covered under California wage orders, every worker is an employee. Then, to prove otherwise, the business retaining that worker must prove (all 3):

(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.

Fail just one part, and the worker is an employee under California wage and hour law. This new test is even stricter than most other states’ ABC Tests, which usually include two ways that Part B can be satisfied.

The new Dynamex test applies only to claims brought under California wage orders. These claims generally include minimum wage, overtime, and meal and rest break claims. This test does not apply to claims such as failure to reimburse expenses or failure to provide employee benefits.

Good luck out there!

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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