Outten & Golden: Empowering Employees in the Workplace

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Classifying Workers as Independent Contractors in California is About to Become Harder

Tuesday, September 10th, 2019

The California Legislature is poised to pass Assembly Bill 5, an act that will reclassify up to two million California independent contractors as employees.  All indications are that the bill will pass in the coming days.  In an op-ed piece published in the Sacramento Bee on Labor Day 2019, California Governor Gavin Newsom expressed his strong support for passage of the bill:

“Reversing the trend of misclassification is a necessary and important step to improve the lives of working people. That’s why, this Labor Day, I am proud to be supporting Assembly Bill 5, which extends critical labor protections to more workers by curbing misclassification.”

If the bill passes final votes in the Democratic-controlled Senate, Governor Newsom likely will pass the bill into law with his signature before the Legislators adjourns on September 13th.  While AB-5 faces fierce opposition from Lyft, Uber, DoorDash and other economic powerhouses, passage of AB-5, with or without significant modifications, seems inevitable.  If passed into law, AB-5 will codify the California Supreme Court’s April 2018 Dynamex Operations West, Inc. v. Superior Court decision and fix certain problems created by the Court’s decision in Dynamex.

What Did the Dynamex Case Establish?

In the context of the rapidly expanding gig economy, the 2018 Dynamex ruling was one of the most consequential wage-related decisions in California in decades.  Although currently the new definition of “to employ” applies only to claims made under the California Industrial Welfare Commission Wage Orders, those Wage Orders reach deep into the workplace.  Wage Orders govern the classification of employees as exempt or nonexempt from overtime, the operation of alternative workweeks, minimum and overtime wage obligations, meal and rest periods, recordkeeping, uniforms and equipment, and even when employers are required to provide seats to workers.

What is the “ABC Test”?

In Dynamex the Supreme Court held that individuals engaged to perform work for others are employees unless the hiring party can demonstrate “(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”  This is the crux of the ABC Test.

Dynamex’s Scope is Both Broad and Limited

The Dynamex decision does not address the classification of workers with respect to other kinds of employment claims, including discrimination, harassment and expense-reimbursement claims.  As it currently stands in California, then, we have two competing tests to determine whether someone is an employee or independent contractor: (1) the multi-factor, economic realities test described in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, and (2) the ABC Test for claims under the Wage Orders.

Consequently, if an individual files a lawsuit claiming unpaid minimum wages (a Wage Order claim) and unlawful discrimination (outside the Wage Orders), a jury might be asked to apply two distinct employee tests to the different claims made by the same person.  A jury might find that the individual was an employee entitled to minimum wages under the ABC Test but that the individual was not an employee entitled to protections against discrimination under the definition of “to employ” set out in Borello.  As currently drafted, AB-5 does not clearly reconcile those differences.  AB-5 would apply only to definition of “to employ” in the Labor Code, Unemployment Insurance Code and the Wage Orders.

These differences in the legal definition of the term “to employee” should be addressed by the Legislature.  But in the interim, California courts will be called upon to reconcile the different definitions of “to employ” that currently exist in the cases that come before them.  Interesting appellate decisions are sure to address these kinds of issues in the coming months.

How Will Passage of AB-5 Effect Workers and Workplaces in California?

While AB-5 current carves out significant exceptions for certain professionals, including doctors, securities broker-dealers, lawyers, architects, accountants, cosmetologists and other licensed professionals, its impact will be felt broadly across California. Passage of AB-5 will grant employment rights and protections to workers who are currently not covered by labor laws, including workers compensation insurance, unemployment benefits and sick leave.  The importance of these benefits cannot be overstated.   California’s rich labor history is filled with such moments as these, from the passage of the first minimum wage law in 1916 to the first day of 2016 when the California Equal Pay Act went into effect.  Providing greater protections to more people in the workplace in California has always been central to our identity as Californians.

However, Dynamex and AB-5, if passed into law in the coming week, will also force employers and workers to reassess their working relationships.  AB-5 would sacrifice the freedoms we associate with working as independent contractors for protections guaranteed to workers engaged as employees.  Unless the Legislature carves out an exception for Uber and Lyft drivers, ride sharing and delivery companies like DoorDash, will be forced to change their fundamental people engagement models.

As expected, employer and industry groups are decrying AB-5 as a doomsday bill that will drive business away from California and severely damage the economy.  The largest players in the gig economy have billions riding on the outcome of the legislative process.  These groups have simultaneously lobbied for exemptions and threatened to void the outcome if AB-5 is signed into law.  If AB-5 is passed, which Uber and Lyft appear now to accept as likely, they have promised to challenge the law through a 2020 voter initiative. Jointly they have earmarked $60 million to a fight to overturn the law.  Given the issues permeating discussions within the Democratic Party in the run up to the 2020 presidential election, however, a California voter initiative meant to take away employment protections granted by AB-5 would have a steep uphill fight.

The California economy is the fifth biggest in the world, just ahead of the United Kingdom, and it has weathered serious challenges over the years as worker protections have expanded and costs to businesses have increased.  California will survive and thrive, and will likely establish precedent for similar movements in other blue states.

About the Author: Patrick R. Kitchin is the founder of Kitchin Legal APC, a San Francisco, California employment law firm. He has represented tens of thousands of employees in both individual and class action cases involving violations of California and federal labor laws since founding his firm in 1999. According to retail experts and the media, his wage and hour class actions against Polo Ralph Lauren, Gap, Banana Republic, and Chico’s led to substantial changes in the retail industry’s labor practices in California. Patrick is a graduate of The University of Michigan Law School and is personally and professionally committed to the protection of workers’ rights everywhere.

The longest shutdown in U.S. history will have lingering consequences for federal workers

Monday, January 28th, 2019

Though President Donald Trump and Congress finally brokered a deal to end the longest federal government shutdown in U.S. history, members of the federal workforce are still left dealing with the financial pain it caused.

The partial shutdown stretched on for 35 days, depriving government employees of two paychecks. Although President Donald Trump said on Friday that federal workers will receive back pay “as soon as possible,” about 800,000 workers — many of whom have had to take out loans and find part-time work — will have to wait late into next week to receive their pay. Contract workers aren’t eligible for back pay at all.

Randy Erwin, the president of the National Federation of Federal Employees, said in a statement that the record-breaking shutdown “caused irreparable harm to working families across the country,” calling it a “shameful chapter in American history.”

“Federal workers and others have resorted to selling their possessions, and many have defaulted on loans and mortgages in order to afford heat, medicine, and food,” Erwin said.

The 35-day partial government shutdown exposed the reality that many Americans are living in financially precarious situations.

Seventy-eight percent of full-time workers say they live paycheck-to-paycheck, according to a 2017 CareerBuilder report. And 40 percent of adults say they would struggle to take on an unexpected $400 expense, reporting they would be forced to sell their belongings, borrow money, or forgo paying the bill at all, a 2017 Federal Reserve report found.

The people who make up the federal workforce often face specific financial constraints.

Federal worker salaries on average fall behind the salaries of their private sector counterparts by 31.86 percent, according to a 2018 Federal Salary Council report. In an executive order issued in December, Trump said pay rates for federal civilian employees would remain stagnant in 2019, claiming that approving a pay raise for federal workers would be “inappropriate” given the financial challenges facing the government.

The federal contractors who won’t receive back pay to compensate them for their missed hours of work are particularly vulnerable. Some estimates find that 40 percent of the entire government workforce is made up of contract workers, totaling 3.7 million people.

“I think [contractors] get lost by the wayside in the concentration on the 800,000 people who are direct employees of the federal government,” said Ken, a contractor for the Federal Aviation Administration who is based in New Jersey, during a Wednesday protest against the shutdown at the Hart Senate Building. 

Sen. Tina Smith (D-MN) — along with Sens. Mark Warner (D-VA), Chris Van Hollen (D-MD), Sherrod Brown (D-OH), Ben Cardin (D-MD) and Tim Kaine (D-VA) — introduced legislation earlier this month that would require federal agencies to work with contractors’ companies to secure back pay for those workers.

While the government was partially shuttered, unpaid workers still needed to figure out what to do about their bills. This month, unpaid federal workers owed about $438 million in mortgage and rent payments — which breaks down to $189 million in rent payments and $249 in mortgage payments — according to a report from the real-estate firm Zillow.

Federal workers told ThinkProgress that the shutdown forced them to take out loans, file for unemployment, take on part-time work, and even consider leaving town. Some of the choices they made over the past month may have lasting financial repercussions.

Patricia Floyd-Hicks, a furloughed worker for the Equal Employment Opportunity Commission (EEOC) who attended Wednesday’s protest at the Hart Senate Building, told ThinkProgress that she had to dip into her savings as she prepares to retire.

Federal workers also worry that the shutdown could damage their credit scores, since workers only need to miss one credit card payment to have points taken off their credit score. Credit-scoring experts told CBSNews that it isn’t easy for a company like FICO to adjust its model in response to an event like the shutdown.

Although the government has reopened for at least the next three weeks, it’s unclear what will happen once lawmakers reach the February 15 deadline for the short-term spending bills that passed Friday. The uncertainty and financial instability is too much for some employees.

Several federal workers told ThinkProgress they are seriously considering whether they should leave the federal government altogether. According to research from the employment-related search engine Indeed, they fit into a bigger trend, as furloughed workers have been searching for jobs at an increased rate during the shutdown.

Indeed’s director of economic research, Martha Gimbel, compared job searches on the Indeed platform among employees in agencies across the government. She found that TSA workers’ job searches were up about 30 percent compared to the same time last year, while IRS workers’ job searches rose about 50 percent. Department of Health and Human Services workers’ searches were up 80 percent over this period last January.

The government watchdog group National Taxpayer Advocate estimates it will take about a year for the IRS’ operations to return to normal, according to the Washington Post — and one of the reasons for the delay, the group says, is that many of the agency’s workers have already decided to leave for the private sector.

Financial struggles can affect people’s mental health in serious ways, as research has shown. University of Southampton researchers published a 2013 report finding a significant relationship between debt and mental disorder, including depression. Findings from a 2016 study on U.S. households “suggest that short-term debt may have an adverse influence on psychological wellbeing.”

Many federal workers have now experienced this strain firsthand. When President Donald Trump threatened to keep the government partially shut down for months or even years, Jordan — who works for the U.S. Department for Housing and Urban Development, and who asked to withhold their full name and gender out of fear of retaliation for speaking to the press — said the “real shock” of hearing this remark “led me to some crazy thoughts.”

“There is a bit of fear that raged through my body,” Jordan said.

This article was originally published at ThinkProgress on January 26, 2019. Reprinted with permission. 

About the Author: Casey Quinlan is a policy reporter at ThinkProgress covering economic policy and civil rights issues. Her work has been published in The Establishment, The Atlantic, The Crime Report, and City Limits.

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