California’s Work Rules Sabotage the Gig Economy

Th Uber Technologies Inc. car service application (app) is demonstrated for a photograph on an Apple Inc. iPhone in New York, U.S., on Wednesday, Aug. 6, 2014. For San Francisco-based Uber Technologies Inc. which recently raised $1.2 billion of investors' financing at $17 billion valuation, New York is its biggest by revenue among the 150 cities in which it operates across 42 countries. The Hamptons are a pop-up market for high-end season weekends where the average trip is three time that of an average trip in New York City. Photographer: Victor J. Blue/Bloomberg via Getty Images

An anti-technology movement from early 19th century Britain has long been part of our lexicon. Luddites were knitters who destroyed textile machines to protect their jobs. Today the term applies to anyone who fights a crusade against the modern economy.

Original Luddites weren’t against technology per se, Smithsonian magazine explained, but only attacked manufacturers “who used machines in what they called ‘a fraudulent and deceitful manner’ to get around standard labor practices.”

California’s modern-day Luddites don’t commit acts of violence against Google, Uber, Amazon and other firms that have shaken up the existing economic order. No one is toasting cellphones in bonfires or sabotaging Federal Express delivery vans, but these New Luddites have used the courts and the legislative process to throw that figurative wrench in the machine. Indeed, the biggest redoubt of Luddite-ism appears to be the California Supreme Court, which in April issued a ruling that has threatened to grind California’s high-tech economy to a halt.

In Dynamex Operations West, Inc. v. Superior Court, the court didn’t directly target these new technologies or business models, but clamped down on the way companies use independent contractors rather than full-time employees as a means to stay flexible and competitive in the marketplace. As Chief Justice Tani Cantil-Sakauye wrote in the unanimous ruling, “When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor…there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification.”

The case centered around a package-delivery firm, Dynamex Operations West, which turned its full-time staff into contractors. Obviously, when companies use contractors they need not pay them benefits and are not subject to hourly work rules, wage requirements and the host of labor regulations the state applies to permanent workers. The court tossed out the old, flexible way of determining whether a worker is a contractor or employee and imposed a strict new “ABC Test” for deciding such matters.

Under the new standard, California firms that want to classify their workers as contractors must meet all of these terms: The worker is outside the control of the employer for the work performed; the worker performs work that is outside the company’s normal scope, such as a freelancer who does public relations for a tech firm; and the worker is engaged in an independent business enterprise, perhaps having his or her own LLC. One need not be a labor-law expert to realize how this threatens many burgeoning new business models including Transportation Network Companies such as Uber to old-line industries such as Realtors and hairdressers.

Growing economies are dynamic. There’s no way to lock anyone’s job into place (outside of government work). One of California’s long-standing problems—a key reason for its sky-high poverty rates—is that its labor regulations read like something from the Industrial Revolution. The state imposes burdensome regulations regarding everything from work breaks to overtime. That might be fine on the factory floor, but the rules stifle innovation—and make it far tougher for companies to survive. These union-backed rules also raise the bar so high that many startups can’t get off the ground, which deprives consumers and workers of exciting new opportunities.

The obvious work around has been to use contractors. It’s not just a boon for businesses. Most of the nearly 2 million Californians who are independent contractors prefer to make their own schedules rather than show up 9-5 at the office. Ask your Uber driver, Realtor or barber. The Department of Labor found that 79 percent of contractors prefer these working arrangements with fewer than 9 percent preferring traditional employment.

If companies are forced to hire all their workers on a full-time basis, that might raise some people’s incomes, but it would also raise the cost per worker by a third and could lead to fewer jobs. There’s a market-based way to deal with problems raised by the court. For instance, the state could pass tax and regulatory reforms that make it more cost-competitive for individuals to purchase the kind of healthcare benefits offered to full-time employees. The state could create a “third way”—another worker status that lies between “full-time worker” and “contractor.”

The state’s business community has called on the Legislature and governor to address the problems created by the state high court. Gov. Jerry Brown punted. Incoming Gov. Gavin Newsom has deep ties to the tech community, but one of his top aides is from the California Labor Federation. Unions already are backing a bill to codify Dynamex. This is shaping up as one of the biggest battles in the new session. Will the California government let its ballyhooed New Economy thrive, or will it embrace an approach that was last relevant in the 1800s?

Steven Greenhut is Western region director for the R Street Institute. He was an Orange County Register editorial writer from 1998-2009. Write to him at sgreenhut@rstreet.org.

This column was first published in the Orange County Register.

Don’t Kill the Growing Gig Economy

Th Uber Technologies Inc. car service application (app) is demonstrated for a photograph on an Apple Inc. iPhone in New York, U.S., on Wednesday, Aug. 6, 2014. For San Francisco-based Uber Technologies Inc. which recently raised $1.2 billion of investors' financing at $17 billion valuation, New York is its biggest by revenue among the 150 cities in which it operates across 42 countries. The Hamptons are a pop-up market for high-end season weekends where the average trip is three time that of an average trip in New York City. Photographer: Victor J. Blue/Bloomberg via Getty Images

What was the biggest local business story of the year?

With a sigh, I vote for the state Supreme Court’s decision in April that basically outlawed the gig economy in California. I sigh because the ruling truly may disrupt the way business increasingly is being done today, especially here in the San Fernando Valley area.

In its decision in a case titled Dynamex Operations West v. Superior Court, the court essentially said you should not hire an independent contractor to do work that is a core part of your business. Instead, you need to hire that person as an employee. If you are a baker and you have a contractor on call who comes in as needed to make specially decorated cakes, you may need to hire that person, if only part time.

Let’s be honest. California businesses increasingly have shifted work to independent contractors as a way to control employee costs and reduce the legal hazards of having people on the payroll. Presumably, the ruling was an impulse to counter that trend by forcing businesses to hire employees instead of paying contractors. The ruling will make operating a business more expensive.

But the ruling will stifle many workers, too. The court seemed to ignore the fact that lots of workers have embraced the gig economy as a way to take command of their careers in a manner only dreamed about a few years ago.

I recently met a young man at a social gathering who proudly described himself as a tennis pro. But he said he only did it freelance; he was not employed by a club or school or anything. Wondering how he could survive financially, I asked something like: “Are you able to get a stream of clients to keep it sustainable?” He shook his head. “Not yet.” He whipped out his phone and opened his Uber app. “This is how I do it.” He showed me that he makes $300 to $400 a week as a driver. The best thing, he said, is that he picks his hours; he drives only when he needs to fill a vacant spot in his day, or to fill his entire day, if need be. It’s not a great deal of money, but he earns just enough to allow him to pursue his dream career. His goal, he said, was to be a full-time, self-sustaining tennis pro in a year.

This is the kind of opportunity allowed by the gig economy. If that young man had been born 10 years earlier, he may have only been able to dream of being a tennis pro someday.

If Uber is forced to hire him as a result of the Dynamex ruling, will he have to work set shifts, ruining the flexibility that allows him to pursue his dream career? For that matter, would Uber even continue to exist in California?

The gig economy is empowering older workers and higher-paid professionals, too. You may know of accountants, lawyers, PR people and the like who are able to quit their jobs to get off the merry-go-round and focus on a few accounts from home or from a coworking space. The gig economy makes it easier for folks to go into semi-retirement.

Gig work is more prevalent in California and surely in Los Angeles and in the Valley area, where a great number of people work part-time or as contractors to earn some cash between projects in the entertainment industry or in the broader creative ecosystem. The gig economy is made for Los Angeles. The Dynamex ruling will hurt here more than most places.

Surely not all gig workers like the arrangement. Some may have to take contractor status out of desperation, and they’d prefer to be a full-time employee with benefits. But how many is that? One poll last August said only 7 percent of independent contractors would prefer to be an employee. That survey was sponsored, so the results may be dismissed. But even if the true number were two or three or even four times that amount, it still means a healthy majority like the freedom and flexibility of independent employment.

In any case, gig work clearly is growing. One recent study projected that such workers could balloon to 40 percent of the workforce by 2020.

Of course, the Dynamex ruling was shocking to companies that totally rely on gig workers. That’s why such firms as Uber, Lyft and Doordash wrote to Gov. Jerry Brown last summer saying that transforming their drivers into employees would imperil their ability to stay in business here and that Dynamex, if allowed to stand, would destroy independent contractor jobs in the state.

So far, there appears to be little legislative or administrative impetus to neutralize the ruling. Businesses hate Dynamex, but the business lobby has little to no sway in Sacramento and may have negative sway. Labor unions like the Dynamex ruling. (Employees can be unionized, after all.) Since unions are very powerful in the state, the legislature may balk at doing anything meaningful to roll it back.

That may leave the issue up to the average Californian to decide. If enough everyday people like the gig economy and stand up for it, Dynamex could be overturned, maybe through the initiative process.

Perhaps the ultimate arbiter in this matter will be the state’s workforce. Many of whom were set free by the gig economy.

ditor and publisher of the San Fernando Valley Business Journal.

This article was originally published by Fox and Hounds Daily

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

California Bill Would Tie Traffic Fines To Violator’s Income

As reported by CBS13:

SACRAMENTO — If you’ve ever gotten a traffic violation, you know it all too well that California’s traffic fines are among the highest in the nation.

But a state Senator wants to lower fines for people who don’t make much money while making it illegal for the state to suspend your driver’s license if you can’t afford to pay.

Devon Olson is in the passenger’s seat, while mom drives her around town.

“I’m Uber mom these days,” mom said.

Devon lost her license because of $3,600 in unpaid traffic tickets. The biggest penalty is a red light camera violation. But she says she wasn’t home to receive the tickets in the mail. Then the late fees kept building and she had to give up the car. …

Click here to read the full article

Bay Area companies paying employees to protest Trump

While many conservative claims about paid protesters demonstrating against President Trump have been met with skepticism and dismissal — in the Bay Area — some of them might actually be getting money for being there.

Companies in the region are increasingly offering their employees paid time off to participate in protests, marches and other demonstrations as part of civic engagement policies.

“Democracy is a participatory institution; it’s not just something that takes place every four years when you have a candidate in a race,” Adam Kleinberg, CEO of San Francisco ad firm Traction, told the San Francisco Chronicle.

The company gives its workers two paid “Days of Action” per year.

Furthermore, tech giants like Facebook recently allowed their employees to take a day of paid leave to participate in the May Day immigration rights demonstration in San Francisco — a rally that was largely a protest of Trump’s agenda.

“At Facebook, we’re committed to fostering an inclusive workplace where employees feel comfortable expressing their opinions and speaking up,” a spokesman explained in an emailed statement. “We support our people in recognizing International Workers’ Day and other efforts to raise awareness for safe and equitable employment conditions.”

Major tech figures like Facebook COO Sharly Sandberg, Google CEO Sundar Pichai and co-founder Sergey Brin have all spoken out against the president, illustrating this administration’s frosty relationship with the industry.

And even those who showed a willingness to work with the White House have faced a wave of scrutiny. For example, Uber CEO Travis Kalanick resigned from the president’s business advisory council earlier this year after facing intense backlash, seeing #DeleteUber trend at the top of Twitter over his decision to offer guidance on a job growth agenda.

The policies appear to reflect a growing discontent in the heavily liberal region that Trump presents more than just policy differences — but an existential threat to their well being and daily life.

“It’s a recognition of the fact that civic engagement is something that we should be doing not just as individuals but as a company,” Buoyant CEO William Morgan told CS Monitor about his software company’s policy. “I wanted to make it more clear that we could not be passive citizens in this world.”

While the policies aren’t new — as companies like Comcast have been offering such leave for years — they appear to be taking on new life in the Trump era.

“People were wishing that I was dropped off in an (Islamic State) territory, calling me an idiotic libtard, candy-ass, saying they hope we’ll go out of business. Really nasty stuff,” Kleinberg told the Chronicle about the backlash to the policy.

Overall, Trump’s policy proposals have been met with a particularly strong response in Silicon Valley due to his stance on issues like the controversial H-1B visa program that tech companies say they rely on to recruit top talent — but one critics say comes at the expense of American workers.

And the president’s rhetoric may be having some effect, as the number of H-1B applications dropped to under 200,000 in 2017 — a 15 percent decrease from a year earlier.

This piece was originally published by CalWatchdog.com

Uber pulls self-driving cars from California roads

As reported by the Chicago Tribune:

Uber pulled its self-driving cars from California roads after state regulators moved to revoke their registrations, officials said.

The move comes after a week of talks between the ride-hailing company and state regulators failed.

Hours after Uber launched the service in its hometown of San Francisco last Wednesday, the Department of Motor Vehicles threatened legal action if the company did not stop. The cars need the same special permit as the 20 other companies testing self-driving technology in California, regulators argued.

Uber maintains it does not need a permit because the cars are not sophisticated enough to continuously drive themselves, although the company promotes them as “self-driving.”

The DMV said the registrations …

Click here to read the full story

Beverly Hills Backs Self-Driving Uber in Fight with California

UberBeverly Hills Mayor John A. Mirisch has taken Uber’s side in its fight with the State of California over the company’s effort to roll out self-driving cars without a special permit.

Mirisch backed Uber even as other civi leaders, such as San Francisco Mayor Ed Lee, have opposed Uber’s provocative move.

After losing labor court disputes and failing to get the patent protection for ride-hailing, Uber Technologies, Inc. seems willing to bet the company that it can continue to operate un-permitted self-driving cars in California.

Breitbart News noted that after successfully launching the nation’s first legal “autonomous” (self-driving) ride-hailing pilot in Pennsylvania in August, Uber on December 14 launched a commercial self-driving service in California, without obtaining a Department of Motor Vehicle permits, as Google and 20 manufacturers have done.

After DMV general counsel Brian Soublet wrote a cease-and-desist letter to Uber’s Head of Advanced Technology, Anthony Levandowski, threatening legal action, he only acknowledged that there was a “debate” over Uber needing a permit to operate self-driving cars. Levandowski claimed that with a stand-by driver “behind the wheel” making the vehicles “less than fully autonomous,” Uber does not need any California permit.

The hard-ball play by Uber comes as the company is under enormous and legal and regulatory assault worldwide, including the legality of utilizing contract operators without treating them as employees, and its failure to be awarded key ride-hailing patent rights.

U.S. District Court Judge Edward Chen in August denied Uber’s $100 million offer to settle a class action lawsuit involving about 380,000 Uber drivers that were misclassified in the U.S. as contractors, rather than employees under state and federal labor law.

Two months later in October, Uber lost what was billed as the UK employment law “case of the year,” when an employment tribunal ruled that the correct legal definition for two of its “App Only” PHV (Private Hire Vehicle) operators were “employees,” rather than “partners.” That means that approximately 60,000 Uber operators are entitled to all the “attendant statutory protections” of sick pay, minimum wage and guaranteed holiday time.

Given the similarity of labor laws in the European Union and the British Commonwealth nations around the world, the ruling my have significant ramifications impacting about 250,000 international drivers that can now sue Uber for misclassification financial damages.

Uber’s ability to dominate the ride-hailing industry it created with the “fundamental idea of a taxi-calling app” rests entirely on U.S. Patent Application 13/672,658 that covers

A method for determining a location relating to an on-demand service on a computing device is provided. One or more processors receiving a transport request from a user. The transport request specifies at least one of a pick-up region or a drop-off region…

But U.S. Patent Office and the courts have refused to grant the issue of that patent several times. Uber is so desperate to secure the issuance of the application that it is still making further appeals for a “Request of Continued Examination,” according to report by Seeking Alpha’s Andrew Connor.

General Motors, which made a $500 million investment in Uber rival Lyft, acquired the intellectual property rights of former ride-sharing company Sidecar. One analyst suggests that the Sidecar acquisition now gives GM “the power to shut down Uber” in the ride-hailing business.

Uber now faces an enormous set of legal and financial challenges due to its current business model relying on individual drivers using their own vehicles for “ride-hailing.” But with 34 issued patents, including 8 acquired recently from Microsoft, Uber is positioned to dominate a “ride-dispatch” service that relies on self-driving cars owned by Uber.

Google and insurance interests led an intensive lobbying campaign in 2012 to pass several pieces of California legislation that authorized the DMV to create regulatory rules and implement autonomous vehicle tests across the state.

Uber was only a start-up at that time, but has been actively lobbying the DMV in Sacramento over the last two years regarding issues surrounding ride-hailing services and autonomous vehicle regulations.

Uber may be calculating that the potential implosion they face with their current business model is so risky, it may be worth “betting the farm” in a battle to convince Gov. Brown and the Democrat-controlled Legislature that California needs to fully-deploy autonomous vehicles.

Beverly Hills has already planned for “a robot fleet of mass transit vehicles” to ease traffic in the congested area — hence the mayor’s support for Uber.

This piece was originally published by Breitbart.com/California

Tech founders want California to secede

As reported by CNN Money:

Shervin Pishevar, an early Uber investor and cofounder of Hyperloop, posted a series of tweets Tuesday night announcing his plans to fund “a legitimate campaign for California to become its own nation.”

And no, he’s not joking.

“Yes it’s serious,” Pishevar told CNNMoney in an e-mail. “It’s the most patriotic thing I can do. The country is [at] a serious crossroads.”

Within hours, several other tech founders offered their support for the plan.

“I was literally just going to tweet this. I’m in and will partner with you on it,” Dave Morin, an investor and founder of private social networking tool Path, tweeted in response to Pishevar.

“I support you in this effort let me know what I can do to help,” Marc Hemeon, a former Google employee and founder of Design Inc., wrote on Twitter. …

Click here to read the full article

Judge Rejects Uber Settlement, Saying It Lowballs California Labor Claims

As reported by Forbes.com:

A federal judge has thrown out a proposed $100 million settlement negotiated by a Boston lawyer on behalf of more than 200,000 Uber drivers in California and Massachusetts, saying it places too low a value on potentially costly claims drivers could bring under California labor laws.

U.S. District Judge Edward Chen, who has consistently ruled in favor of attorney Shannon Liss-Riordan over Uber’s fierce objections, rejected the settlement because it allocated only $1 million for claims under California’s Private Attorneys General Act, a law that allows employees to sue for civil penalties on behalf of the state. The California Labor and Workforce Development Agency estimated the value of those claims to be $1 billion if a court determined Uber drivers were employees and not independent contractors, as Uber maintains.

The judge also dismissed as meaningless an unusual provision in the settlement that would increase it from $84 million to $100 million if Uber held a successful initial public offering, saying he couldn’t consider that part of the deal since he had no assurance it would happen. (Uber, which has a private market value of $28-$60 billion based on recent venture capital rounds, told the judge “it would not be proper” to respond to his questions about an IPO.)

The settlement came on the eve of the first trial, and Chen’s rejection puts …

Click here to read the full story

Unions Target Uber and Lyft as Next Payday

UberLabor groups have sought out relationships with Uber drivers, whom the company recently settled with, but has yet to classify as employees.

“A day after Uber announced a $100 million settlement with some drivers in California and Massachusetts, the Teamsters announced plans to form an association for workers in California’s ride-hailing industry,” USA Today reported. “The Teamsters said drivers had approached the transportation union seeking help with benefits, a dispute resolution procedure, legal and tax services, advocacy assistance, and a stronger voice on the job,” the paper added, although the way such assistance would be organizationally formalized remained unclear. “Members would probably not join the actual union, but would instead join an association, which could possibly be funded, though not controlled, by Uber.”

Crunching the numbers

So long as Uber and its fellow ride-share companies stay away from the employer-employee model, unionization would be off the table. “One problematic aspect for the Teamsters is that Uber and Lyft drivers are still classified as independent contractors,” as Fortune noted. “As a result, these workers would not be able to form a traditional union. Instead they would have to form an association, which would have limited bargaining abilities and be allowed to speak on the behalf of drivers.”

For that reason, Uber was willing to shell out substantial cash in its California and Massachusetts settlements — “up $84 million,” as the Verge observed, plus “another $16 million if the company eventually goes public.”

“In exchange, Uber gets to keep its business model — drivers are ‘partners’ with the flexibility to make their own schedules, but lacking access to traditional benefits like health care — which has helped fuel its growth across the world, as well as its other worldly valuation of $62.5 billion –€” making it the most valuable technology startup on the planet.”

“If the lawsuit had gone to trial, and a jury decided that drivers indeed deserved to be full employees, then Uber could have suddenly found itself responsible for all sorts of extra costs, from Social Security payments to minimum wage requirements,” the Verge suggested. But while some Uber drivers have hoped for more benefits, some analysts have questioned whether Uber could sustain itself at all without relying on its unusual business model.

More hurdles

And in California, the settlement will not become law without clearing at least one more hurdle. “Uber’s settlement depends on the approval of a single judge,” Forbes noted. “This is by no means a foregone conclusion, as Uber’s rival Lyft learned earlier in April when Judge Chhabria rejected its $12.25 million settlement of a similar class action. Among other reasons given for the rejection, the amount Lyft would pay was ‘glaringly’ inadequate monetarily, did not provide sufficient payment to the state of California under the Private Attorney General Act claim, and the non-monetary relief, which did not meet one of the lawsuit’s primary goals of reclassifying drivers as employees, was insufficient to overcome these problems.”

At the same time, according to the site, the state’s Private Attorney General Act could allow future suits by “unions such as the International Brotherhood of Teamsters, which continues to attempt to organize Uber drivers in California and in the state of Washington,” or “the U.S. Department of Labor and the National Labor Relations Board, which have made clear their skepticism of the independent contractor model and intention to allow organization by misclassified employees.”

In fact, this March, the NLRB already sued Uber in a San Francisco federal court, “demanding it obey subpoenas related to five unfair labor practices cases,” as Politico reported. “And just last week an NLRB regional director filed a complaint against a Los Angeles company for allegedly misclassifying its trucking workers as independent contractors. That gives the board an opportunity to rule that misclassifying workers is an unfair labor practice, an issue with obvious relevance to Uber.”

Originally published by CalWatchdog.com