CA Supreme Court Nearly Vaporizes Independent Contractor Law – Setback to “Gig” Economy

In a recent sweeping ruling that helps labor unions but runs contrary to small businesses and Silicon Valley innovation and the developing “gig” economy inspired by companies like Uber and Lyft, the California Supreme Court has decided that hiring companies no longer have much a say in whether a person who provides services for hire is classified as an “independent contractor” or an “employee.” The implications of the new ruling, filed on April 30, in the “Dynamex Operations” decision are huge, as it will extend onerous state employment and labor laws to new classes of workers, and will force the reclassification of tens of thousands of business relationships in the state between businesses and their former contractors, in the process, eliminating or raising the costs of goods and services to average Californians, while standing as a major obstacle to new popular ideas in technology such as ride sharing and delivery services.

The facts of the case itself center on a delivery driver for a company who claimed he was misclassified as an independent contractor. The attorneys for the driver successfully argued against the current standard, which used a multi-factor test to determine the proper classification of a worker.

Many new technology-aided companies like Uber and Lyft depend on workers who want independence with flexible hours and who want to set their own pace of work. However, workers classified as employees under the state and federal labor laws are generally guaranteed more expensive health care benefits and worker compensation, as well as collective bargaining rights, especially in California. Unions are particularly opposed to independent contractor relationships and they seek leverages in the law to add more members and therefore more political power. Citing the need for more “worker-friendly” laws, one lawyer in support of the change said, hyperbolically, “as the federal government increasingly abandons its past commitment to protecting workplace rights, the states are stepping up to fill the gaps.”

Under the new rules, businesses have almost no say in how their business relationships between employees and contractors are separated and classified. The opinion or business model of a business that prefers to classify a relationship as independent contractor doesn’t matter much any more. Now, in California, the determination is made by applying the so-called three-pronged “ABC” test, which puts all the burden on the employer to show the worker is not an employee. Under the test, to establish independent contractor status, the business must show: 1.The worker is free from the control and direction of the hirer in connection with the performance of the work; 2. The worker performs work that is outside the usual course of the hirer’s business; and 3. The worker is customarily engaged in an independently established trade, occupation, or business of the same natures as the work performed for the hirer.

The second and third factors of the new test are seen as the most troublesome, especially for “gig” economy businesses. If a person is delivering the public food, for example, is the delivery part of the fundamental business of that entity? If it is, then the deliverer becomes a far more expensive employee, covered by state wage and hour and other labor laws, entitled to health care, and entitled to collective bargaining rights. If this is the case, then what are the implications to the state? Well, people who want flexible hours and the ability to work when they want as deliverers, will find lost business opportunities. And the cost of food delivery will likely go up dramatically. This implication is just the “tip of the iceberg.” The implications resonate throughout the economy to the detriment of not only gig businesses, but largely small businesses that do not want to be saddled with costly labor law enforcement issues, and even nonprofits who use skilled workers attempting to offer things like compassion and health services to the poor.

A copy of the Court’s decision can be accessed here: http://www.courts.ca.gov/opinions/documents/S222732.PDF

Unintended Consequences of Uber Boom

There’s been a lot of chatter in California these days about Uber, Lyft and so-called “transportation network companies,” or TNCs – and why not?  After all, these evolving services were “born” in the Golden State, which has earned renown as a beacon and world leader of innovation and technology. Consumers, the media and many politicians have focused their attention on this popular phenomenon as it moves as rapidly as its driver-owned fleet.

UberBut, looking closer at the issue, this baby boomer can’t help but cite a few choice words from a Crosby, Stills and Nash hit: “Traveling twice the speed of sound, it’s easy to get burned.”  What many leaders are now rightly taking into consideration are the unintended consequences of these TNCs – a safe and competitive landscape for consumers, the marketplace and our highways.

Thankfully, many leaders in the State Capitol are realizing that we need to know more about the Ubers of the world – what they do, how they operate, how they are regulated, and what this means for the future. In recent weeks, a joint legislative hearing was convened to focus on just that, and the facts speak for themselves. There was general unanimity that these new technologies are a good thing if done right, but too many uncertainties remain. Will this new service lead to less traffic or more? Does it exclude certain California consumers while favoring others? What are the views and perspectives of both driver and passenger? How seamless is the background check process for all drivers? Many unknowns persist all-around. In fact, the lobbyist for one TNC wasn’t even aware of the rough number of cars they have on the highway.

Much of the emphasis during this hearing and otherwise has been on the fallout this new “app” service has had on other people-moving services, notably taxis and limousines, but there has been little, if any, public discussion about its impact on another major contributor to jobs, the economy and our communities: California’s same-day delivery industry.

These are the mostly mom-and-pop family businesses that deliver vital goods and products like blood, medical supplies, rare construction parts and legal documents to local customer’s door-to-door, business-to-business, in real time. To be clear, the owners of these businesses are not “anti-TNC”, and they realize they must keep up with the times to be competitive. As times change, so must they and their business models to court the customer with best-in-class pricing, cutting-edge technologies and quality customer service. And the majority of these companies are, in fact, doing just that.

We believe in a free and competitive marketplace. That’s not our concern. What is problematic is that the delivery industry, many that have been in existence for 20, 30, 40 years or more and operating on razor-thin margins, are required to comply with specific motorist regulations and requirements while these TNCs are not being subjected to the same level of enforcement and accountability.

The current law requires that delivery companies must possess a Motor Carrier Permit through the DMV to move goods for hire. TNCs are not being held to the same standard and are, in fact, moving products from Point A to Point B with no permit and ignoring the law.

Delivery companies must obtain adequate insurance to ensure that the general public is protected. TNCs aren’t held to that same standard. Not only is this unfair, it puts the lives of millions in our communities at risk.

As our legislative leaders debrief from this recent hearing and consider next steps, we urge them to consider policy that will bring accountability and safety for all of us:

  • A better-defined Motor Carrier Permit that spells out guidelines for transporting both goods and people
  • Reasonable insurance requirements for drivers and companies in the transportation community
  • Improved accountability and uniformity for background checks and fingerprinting for all related personnel to maximize safety for consumers, employees and others on the highways and roads
  • And better clarification and simplification of the definition of “independent contractor” versus “employee”.

The goal here is to identify changes and a proposal that all motorist stakeholders – delivery companies, TNCs, taxi services, livery services and others – have had a role in shaping and support.

Our small business members believe in running the race – after all, they do it every day when they open the doors of their business – but our leaders in Sacramento need to foster an environment that allows all of us to compete on a level – and safe – playing field.

Executive Director, California Delivery Association.

Originally published by Fox and Hounds Daily

“Sharing” Economy Puts Democrats Between a Rock and a Hard Place

Sharing.

It sounds so simple, but as an economic trend, sharing is a divisive issue for Democrats.

Tension over the so-called “sharing economy” has been on full display in Sacramento, with Democrats who control the Legislature facing mounting pressure. On one side are trendy tech ventures that are gearing up their political lobbies. On the other: Democrats’ traditional allies in organized labor, who remain highly influential.

California-based companies that allow people to make money by “sharing” their homes and cars have hit the mainstream. Uber, the smartphone-based ride-hailing service, operates in 300 cities globally. And Airbnb, a website that allows homeowners to rent a room to vacationers, now has 55 million users around the world.

The expansion has sparked predictable pushback from the traditional providers of rides and rooms: the taxi and hotel industries. Now union leaders are trying to convince Democrats that the trend in economic “sharing” represents a fundamental shift that will harm workers.

“Is this the future of our economy, where you have no security of getting a regular paycheck, no security… if something happened to you on the job?” said Angie Wei, a lobbyist for the California Labor Federation.

Her group represents several unions, including those for hotel workers and cab drivers. These old-school industries have longtime ties to many Democrats in the Legislature today. Taxi companies, for example, routinely give political donations in local races, leading to relationships with politicians who advance from city councils to seats in Sacramento. Hotel worker unions are big donors in legislative races, with one group spending $1.2 million in California during the last election cycle.

uberDespite the clout, Wei worries “we’re losing on this issue. … Uber has romanced legislators [into thinking] that they are a new, innovative company and that if you oppose Uber or their model, you’re opposing innovation.”

The Internet-based companies are relative newcomers when it comes to political influence in Sacramento. But they’re showing they can play the game:

  • Ride-sharing company Lyft began making political contributions in California last year, including $15,000 to Gov. Jerry Brown’s ballot measure committee and $4,100 to Senate President pro Tem Kevin de León, D-Los Angeles. Uber spent nearly $200,000 on lobbyists in Sacramento so far this year – more than Walmart and Bank of America, as the Los Angeles Times has noted.
  • Airbnb recently hired Chris Lehane, a well-known Democratic political consultant who worked in the Clinton White House. The company also retained its first Sacramento lobbyist this year.
  • A national trade group called the Internet Association opened a Sacramento office for the first time last year. It has hosted numerous events for California lawmakers, including a $16,000 reception at the state Democratic convention in Anaheim last spring.

Robert Callahan, the association’s lobbyist, said lawmakers’ familiarity with internet-based brands has helped the new industry break in.

“Legislators are waking up and searching Twitter and going on Instagram and posting on Facebook and sending Gmail. They have a personal attachment with our companies,” he said. “That helps us when we go in and say, ‘We have an issue we think you should resolve.’”

A recent example was a bill that would allow state employees to be reimbursed for using companies like Uber and Airbnb when they travel for work. The bill sparked a heated debate between Democrats on the Senate floor last week.

“Why does this industry deserve a special status?” said Sen. Ben Hueso, D-San Diego, who worked in his brothers’ taxi business for 15 years before he was elected. “Why do they deserve protection from the Legislature?”

The bill, AB229, is now on the governor’s desk after it passed the Senate with the support of all Republicans and less than half of the Democrats.

The new companies don’t always get their way, though. Two bills backed by Uber stalled in the Senate committee chaired by Hueso. His spokeswoman said he plans to hold a hearing this fall to deal with ride-sharing issues more comprehensively.

On the home-sharing front, Airbnb fought back legislation that sought to make it easier for cities to collect taxes on vacation rentals made through web-based services.

Sen. Mike McGuire, D-Healdsburg, the bill’s author, said the trend has been a burden on his wine country community, with wild parties and public drunkenness reported at houses booked through the sites. Still, the measure stalled in a committee. McGuire said he will try again next year.

Airbnb’s vast user network is an obstacle he’ll have to confront. Lehane said its customers flooded the statehouse this spring with more than 769,000 emails asking lawmakers to reject McGuire’s bill.

“When people find out about issues, they really mobilize,” Lehane said. “This is a company that is, at some level, redefining capitalism.”

Originally published by CALmatters.org

Regulated Uber? Or Deregulated Taxis?

Considerable disagreement continues over whether or how to regulate ridesharing companies, but both sides concur on the need for regulatory parity uberbetween taxis and ridesharing services.

Policy experts on both sides of the debate met Tuesday for a discussion hosted by the Cato Institute, a libertarian think tank, and while they generally agreed that the same regulatory framework should apply to both taxis and ridesharing services, this was the extent of their accord. (RELATED: Five Ideas to Put Taxis, Ridesharing Companies on an Equal Footing)

Brink Lindsey, Cato’s vice president of research and the moderator of the discussion, framed the issue by saying that, “ridesharing is the hot new industry of the last few years,” but has come under fire from traditional taxi operators, who claim it has attained success mainly by “evading existing taxi regulations.”

Lindsey also pointed out that since 2012, when Uber and Lyft began operation, the market valuation of both companies has increased substantially, while the markets for taxi medallions in New York City and Chicago have all but collapsed, suggesting that ridesharing enjoys certain advantages over traditional taxis.

According to Marc Scribner, a research fellow at the Competitive Enterprise Institute, modern taxi regulations date back to the 1920s, when streetcar operators “first began lobbying for anti-competitive regulations.” (RELATED: Anti-Uber Efforts Mostly Fizzling)

By the 1940s, those restrictions had been adapted for the taxi industry in most cities, primarily in the form of taxi medallions, minimum fares and geographical service requirements, all of which, he claimed, serve to limit competition, and thus service quality, in the industry.

Dean Baker, co-director of the Center for Economic and Policy Research, acknowledged that ridesharing is “a great innovation,” but said it is also important “to decide what legitimate regulation is,” especially when it comes to passenger safety.

He claimed, for instance, that, “it doesn’t make sense not to have a uniform policy for insurance,” because ridesharing passengers should be entitled to the same reasonable expectation of compensation in the event of an accident that taxi passengers already enjoy, even if the requirement does impose some costs on business.

Similarly, Baker also asserted that ridesharing companies should be required to perform background checks on drivers, just as taxi companies must, saying, “It seems reasonable to ensure that drivers don’t have a violent criminal history.”

Besides, he added, “I would hate the idea of my 87-year-old mother driving an Uber.”

In addition, Baker proposed that, “minimum wage and overtime rules should apply, and ridesharing drivers should be able to bargain collectively,” claiming those steps would help to ensure commensurate pay rates for both taxi and ridesharing drivers.

However, Matthew Feeney, a Cato policy analyst, countered that ridesharing companies have been impressively responsive to concerns such as those Baker raised, which Feeney takes as evidence that the market is better able to handle such challenges than is the government.

“Before we ask if government should regulate,” he said, “we should ask if companies will regulate themselves.” (RELATED: Adam Smith Opposes Regulation of Taxi Industry)

“Insurance is a legitimate concern,” Feeney granted, but he said ridesharing companies have already taken steps to address that shortcoming. In the case of Lyft, for example, “a $1 million insurance policy takes effect as soon as a driver accepts a passenger.”

There is a “gray area” in that coverage when a driver has their ridesharing app turned on and is not carrying any passengers, but Feeney said that in most major cities, companies have already sprung up to “fill the gaps” by offering per-mile insurance coverage.

Moreover, Feeney maintained that ridesharing services are inherently safer than traditional taxis for both drivers and passengers. (RELATED: Illinois Governor Vetoes Anti-Ridesharing Bill, Taxis Protest)

Driving a taxi, he explained, is essentially the same as “picking up hitchhikers for a living,” with the predictable result that it is among the more dangerous professions an individual can engage in. In fact, in all but two years between 2006 and 2013, “more taxi drivers were killed on the job than police officers or firefighters.”

The occupation is so risky, he said, not only because taxi drivers are known to carry large amounts of cash (“the mother’s milk of crime”), but also because “their job consists of giving rides to anonymous strangers.”

With ridesharing services, in contrast, “drivers and passengers are not anonymous, and they rate each other,” which serves to deter crime by making it easier to identify and apprehend perpetrators.

“Taxis are not destined to go extinct,” Feeney concluded, “but to maintain relevance they must tap into what makes ridesharing so popular.”

Follow Peter Fricke on Twitter

Originally published by the Daily Caller News Foundation