If you’re paying attention to the world of independent contractors (ICs), you’re already familiar with the Dynamex Decision (which we covered here). So what makes the recent Assembly Bill 5 news flashy? It’s that this bill approves codifying the ruling. That means the decision is one step closer to being iron-clad law (along with all the usual associated legalese and fines, of course).
What are the arguments?
Reclassifying many ICs as employees protects workers
Supporters of the bill, such as San Diego Assembly member Lorena González said, “Big businesses shouldn’t be able to pass their costs on to taxpayers while depriving workers of the labor law protections they are rightfully entitled to.”
While it certainly affects many more industries than the ride-hailing apps Lyft and Uber, those companies do often end up at the center of the debate. Multiple class action lawsuits prove that plenty of drivers are fighting for the labor protections that come with being employees.
It’s not really about the workers
California frequently passes laws claiming to support the workers, but company representatives for the ride-hailing apps are quick to say workers like the freedom to create their own schedules. You’ll find many independent contractors (drivers as well as those in other industries) who agree. They like being able to choose compatible clients and projects and build a business for themselves instead of feeling like a cog in a corporate wheel.
Some workers could end up making less as employees. Employers don’t pay ICs the same taxes and benefits as they do employees and may start negotiating lower hourly rates for workers in order to keep their profits strong. That means newly-minted employees may make less even as they get access to benefits such as unemployment insurance, health care subsidies, paid parental leave, overtime pay, workers’ compensation, and a guaranteed $12 minimum hourly wage.
What is it most certainly about?
Money, cash, and dollar dollar bills
This goes for all parties. This New York Times article says companies like Uber and Lyft would have to raise their labor costs by 20 to 30 percent if they reclassify drivers as employees.
Big-time tax dollars (as in billions with a B)
According to the court’s ruling on the Dynamex decision, “the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenue.”
Small businesses can avoid certain taxes with fewer employees and independent contractors can write off business expenses and may also underreport their income. Hence the resulting “deprivation.”
What about exemptions?
Not all ICs want to be employees
Many hairstylists, for example, benefit from the “booth rental” model. As part of the salon, they get the benefit of the establishment’s marketing as well as possible walk-in clients. Still, they set their own schedule, manage their own business, and keep any earnings beyond their rent.
The bill seeks to accommodate such industries, hairstylists included, by exempting them from the ruling. There are plenty of other exemptions (such as doctors, dentists, lawyers, architects, insurance agents, accountants, engineers, financial advisers, and real estate agents) in the bill for professionals deemed true independent contractors who negotiate their own contracts.
The bottom line
It’s hard to overstate the potential impact of this subject. These headlines (from this week) demonstrate that this isn’t the last we’ve heard on the subject:
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