Will California’s IC Law Become the Approach of the Biden Administration? - American Society of Employers - Anthony Kaylin

Will California’s IC Law Become the Approach of the Biden Administration?

Independent ContractorThe issue of independent contractor (IC) versus employee classification has long been around, but since the Reagan administration, has been a focus of review. It could be argued that employers have long misused the IC classification to avoid a litany of employment law obligations. In addition, employers have been accused of abusing the IC relationship, especially if ICs are required to work during specific times, with deadlines, are supervised like an employee, and have performance reviews.  Although this is an extreme example, there are a few cases in a variety of scenarios with these factors. 

However, digging deeper into the dislike of ICs by the government, regardless of administrations, is the fact that ICs can hide income through a variety of legal means and may fail to timely pay employment taxes.  The government wants their money and consistency of payments, especially as the gig economy grows larger. 

In California, Dynamex Operations West v. Superior Court, 4 Cal.5th 903 (2018) established a new ABC test for ICs that made it more difficult to classify a worker as an IC. The ABC test permits a worker to be an independent contractor only if they meet each of these three factors:

1.       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

2.       The worker performs work that is outside the usual course of the hiring entity's business; and

3.       The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

This approach was codified in law in California Assembly Bill 5 (A.B.5) in September 2019. A recent study from the University of California, Santa Cruz showed that over 70% of gig workers work more than 30 hours a week but do not receive most employee benefits.

This situation has caused uproar in the gig economy, especially with Uber and Lyft drivers.  California's 2020 ballot included Proposition 22, which would allow app-based drivers and delivery workers to work as ICs instead of company employees. State law currently requires rideshare and delivery companies to hire drivers as employees, not independent contractors.  Proposition 22 won, and these workers can stay independent, but these companies must provide a minimum amount of benefits to the ICs.  It should be noted that there was a power game going on as Uber, Lyft, and others threatened to leave the state. 

A Biden administration would likely bring the ABC test as a national standard.  It may take longer than legislation, as the Senate will likely be Republican, but the administration would use regulatory means to make this approach a reality.  Under the Obama administration, the IC definition was expanded in such a way that there did not seem to be anyone who could qualify as an IC.  This situation caused havoc on salary budgets, among other things.  Biden would likely continue this trend.

Assuming the worst, HR should plan now for how to handle ICs.  The best approach is likely to have all ICs run through a consulting house like ASE or another 3rd party to ensure that their full employment costs are not attributable to the employer. However, depending on the National Labor Relations Board (NLRB), they may try to resurrect the Browning-Ferris Industries decision which held that indirect control or unexercised, contractually reserved control alone could be enough to have joint employment.  This decision was overturned under the Trump NLRB.  The thought of bringing it back raises the specter of a litany of employment issues.  HR should work with legal counsel now to develop their 2021 employment roadmap in a Biden administration.

 

Source:  Benefits Pro 11/4/20, Yahoo News 11/4/20, The Balance Small Business 8/2/20, American Bar Association 9/3/20

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