California Keeps Moving Further on Changes to Contractor/Employee Classification Status - American Society of Employers - Michael Burns

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California Keeps Moving Further on Changes to Contractor/Employee Classification Status

california gavelLast week EPTW reported on the National Labor Relations Board (NLRB) walking back its Browning Ferris decision and loosening criteria determining when one employer can be found to be the employer of its vendor’s employees.

When the NLRB decided several years ago to reign in employers’ use of contract employees to, in its view, sidestep labor and employment law, it seemed to lead an entire regulatory movement throughout the government.  One agency after another modified regulation and rules to remove previously legal separation between two employers.

The IRS, the U.S. Department of Labor, and the Equal Employment Opportunity Commission (EEOC), to name a few, changed or proposed to change their regulations to find more relationships (such as franchises and parent-subsidiary organizations) that do not separate employment and other legal liabilities as it once may have.

California broke down the liability wall by passing a law called AB5 that gave a slew of employment rights to a very broad range of employment classifications. Using this law, the California state attorney general’s office went after ride sharing businesses including Lyft and Uber stating they both were allegedly engaging in “systematic wage theft.” In effect, stating the ride sharing companies as well as other business that engage drivers were employers of the drivers, not contractors as the companies had treated them as.

Just last week a California state judge found that Uber and Lyft had misclassified their drivers as contractors instead of as employees as the state law dictated.  This decision throws a major wrench into the operating models used by both companies and slew of others that engage drivers on a temporary contract basis.  Because of that contract classification, they do not provide mandated benefits (workers compensation or unemployment benefits) or most any type of welfare or fringe benefits. The contractor status saves companies a lot of personnel and other costs which in turn allows the companies to offer cost-effective services to users of the service.

Lyft and Uber immediately appealed the decision and were granted a stay that if the decision continued to be implemented would have immediately imposed compliance requirements that would significantly reduce their services and result in much higher prices for service. The judge granted a 10-day stay on this ground-shaking order.

So now we have the NLRB (a federal agency) stepping away from a controversial employment regulation position and California charging ahead with implementation and enforcement of its “new” joint employer standards. And as legal mavens say, the legislative “winds” blow from the west. So other states may adopt what California did.  Further, if you add a potential change from a pro-business GOP administration to a pro-worker democratic administration in Washington DC, that may set in place the political structure necessary to completely change and effectively eliminate the independent contractor as well as significantly diminish the value of the franchise  structure currently in use today.

Employers that use contractors or that have franchise operations in place may need to pull out the currently dormant joint employment proposed regulations and rules and start thinking about possible changes that may come from the upcoming election this fall.

 

Source: Uber would likely shut down in California for over a year if new ruling not overturned NBC News 8/12/2020  

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