Eureka

Advice For The Governor: Clean Up A Made-In-California Mess

Tuesday, February 11, 2020

Dear Governor Newsom,

Some escaped while others were left behind. As a result, workers in nearly forty independent contractor classifications can continue to enjoy the freedom of being their own boss while those formerly free independent contractors in nearly fifty classifications will either be forced to be an employee of someone else or, much more likely, simply lose work altogether.

This is the turmoil created by Assembly Bill 5, which you signed into law last year.

A few Californians’ reactions to the new law:

  • “#AB5 forced me to shut down my business. I went from making $80,000/year in home services to a minimum wage employee. My family trade is gone. I’ve gone from working 4 days/week to spend time with my kids to not knowing if I can make ends meet working 7 days”
  • From a sign-language interpreter: “I have lost the complete ability to make a living. My freelance career is gone. I lost all 3 of my agencies. California seems set on destroying honest working people.”
  • “Why would an out of state video producer hire a California crew? Especially when it would open them up to the risk lawsuits, fines and penalties. They'll just fly in their own crews.”
  • “You offer zero clarity on the misclassification of writers. You effectively cost me my job the day you signed this bill. And not just one job, seven, because every company I worked with last year just hired someone out of state to replace me.”

The above tweets are taken from #AB5Stories— “AB5” shorthand for Assembly Bill 5, the law that was supposed to have codified, lessened the severity of, and equalized the state supreme court’s Dynamex Operations West, Inc. v. Superior Court of Los Angeles decision.

Taking for itself what should have rightly been the State Legislature’s job to do, the court decided to end the debate—once and for all—on who is an independent contractor and who is really an employee, a distinction already defined in an accommodating way by the decades-long use of the S.G. Borello & Sons, Inc. v. Department of Industrial Relations decision.

According to labor and employment law attorney Timothy T. Kim, the Borello test “is more flexible because it balances the different factors to arrive at a classification based on individual circumstances of each case. Prior to Dynamex, many cases (including the court’s own recent decisions) referred to the multifactor Borello test as the traditional ‘common law’ classification analysis.”

But Borello was not good enough for the current state supreme court. In handing down its Dynamex decision on April 30, 2018, the court included an “ABC test” that was supposed to have cleared the matter up once and for all. To be an independent contractor:  

  • A: the hiring entity does not exert significant control over the worker;
  • B: the services are “outside the usual course of business” for the hiring entity; and
  • C: the worker holds his or herself out to the world as an independent business.

The “B” part of the decision has been the most problematic. Governor, you can be forgiven for thinking “the usual course of business” for a hospital is to provide its customers with health care. So, too, is it “the usual course of business” for physicians, surgeons, and psychologists to provide health care, making those working as independent contractors crystal-clear examples of whom the court now wants classified as employees. But no, AB 5 allowed those occupations to keep their independent contractor status.

“The laundry list of exemptions has been negotiated,” pointed out Republican state assemblyman Jay Obernolte. “Any industry with enough money to hire a good lobbyist could get on the list, but all the ones that couldn’t aren’t.”

So much for that old-fashioned concept of equal application of laws.

Left locked out on the other side of the barbed-wire fence are workers in nearly fifty occupations who now will have to be classified as employees, which for many will simply mean termination, as some of the Twitter examples above show.

The Dynamex decision and its AB 5 codification have been extremely hard not only on the transportation industry but also on many other industries, including the arts and entertainment businesses.

“Find me a state where dozens of arts nonprofits/community theaters are closing doors, putting 1000’s out of work. One children’s theater in L.A. area now forced to cancel a play benefitting 90+ Title9 schools,” reads one tweet on the #AB5Stories Twitter page. “We are currently in the final week of rehearsals for an opera. The added costs of complying with AB 5 for this production is estimated at about $6000. The only way we can manage that extra cost is by cutting other aspects of the show,” reads another tweet.

Truckers chose not to wait for future legislative redress and went straight to the courts, winning a temporary exemption at both the state and federal levels. Uber, Lyft, DoorDash, and other services that rely on “gig” workers are looking, either alone or in concert, at a potential November ballot initiative. But where does it leave everyone else, from franchisees and yoga instructors to florists, computer programmers, and people in dozens of other occupations?

Governor, the National Federation of Independent Business (NFIB) and other associations representing independent contractors are working on one overarching legislative fix: to exempt all business-to-business relationships. If I own a barber shop but am not skilled enough to cut hair, an independent contractor with those skills should be able to rent a chair from me to do his or her work on a schedule he or she chooses.

Such remedies were offered last year, but all were rebuffed. The author of AB 5, Democratic assemblywoman Lorena Gonzales, is, after all, a former labor union organizer and activist and gets quite protective of what she views as a major accomplishment of hers, and quite testy around any criticism of it—even dropping F-bombs in one of her tweets.

“Assembly Bill 5 took a sledgehammer approach to an employment problem that required a scalpel, which consequently hammered many Californians who truly wish to remain their own bosses,” said Republican state senator Patricia Bates in proposing two pieces of legislation this year, SB 867 and SB 868, each aimed at helping newspapers and freelance journalists.

Also in the mix are AB 1928, by Republican assembly members Melissa Melendez and Kevin Kiley, which would repeal AB 5 and return classification tests to the Borello days, and ACA 19, which would enshrine the right to earn a living into the California State Constitution. Assemblyman Obernolte has introduced AB 1925, which would put a wide swath of small businesses out of harm’s way from AB 5—a position NFIB has been advocating all along.

But Bates, Melendez, Kiley, and Obernolte are minority members in a legislature where Democrats enjoy supermajority control. Still, AB 5 is proving to be a policy embarrassment. Perhaps that’s why you, Gov. Newsom, requested a meeting with the organizers of a late-January rally calling for AB 5’s repeal.

Governor, I hope you listened to the protestors. And I trust you and your advisors to take a close look at the various AB 5 remedies circulating in the legislature. Let’s get that law fixed right now. Don’t pick winners and losers. Give relief and hope to every mom and pop in California who wants to work free from government shackles.

John Kabateck is the head of the California chapter of the National Federation of Independent Business. He also served as director of external affairs for Gov. Arnold Schwarzenegger and a senior advisor for Gov. Pete Wilson.