Diane Mulcahy is an adjunct lecturer in the Entrepreneurship division at Babson College. She created and teaches the MBA...
William B. Gould IV is the Charles A. Beardsley professor of law, Emeritus, at Stanford Law School. Professor Gould...
J. Craig Williams is admitted to practice law in Iowa, California, Massachusetts, and Washington. Before attending law school, his...
This month, California State Senators passed California Assembly Bill 5 better known as AB5, California’s Gig Economy Worker Bill. AB5 requires workers previously classified as independent contractors to be classified as employees. AB5 now heads to Governor Gavin Newsom’s office.
Supporters of the bill praise the minimum wage and sick leave benefits of AB5, affording them greater labor protections, whereas opponents, like Uber & Lyft, argue that AB5 would impact the flexibility and freedom of workers. States like Massachusetts, Virginia and New Jersey, already have laws similar to AB5 in place. On Lawyer 2 Lawyer, host Craig Williams is joined by Diane Mulcahy, an adjunct lecturer in the Entrepreneurship division at Babson College and author of The Gig Economy, and William B. Gould IV, the Charles A. Beardsley professor of law, Emeritus, at Stanford Law School, to discuss California’s AB5 gig work bill, the gig-economy, and the impact on the workplace.
Lawyer 2 Lawyer: – Law News and Legal Topics
California’s AB5 Gig Work Bill
Diane Mulcahy: The test is not well-defined, it’s not clear, it’s not objective and I think it’s going to be difficult to implement and enforce this law.
William B. Gould: The fact of the matter is that we have become a two job and three job economy, sometimes because of the workers’ wishes, but very frequently because workers have to work two or three jobs to keep bread on the table and to foster some kind of environment of opportunities for their children.
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For our show today this month California state senators passed Assembly Bill 5, better known as AB5, California’s Gig Economy Worker Bill. AB5 requires workers previously classified as independent contractors to be classified as employees, affording them greater labor protections, minimum wage laws and sick leave.
AB5 now heads to Governor Gavin Newsom for signature, which is expected.
Well, according to the Bill’s author Assemblywoman Lorena Gonzalez, a Democrat from San Diego, AB5’s aim is to provide a steady income, health benefits and other protections for contract employees like Lyft or Uber drivers.
Supporters of the Bill praised the benefits of AB5 and opponents like Uber and Lyft argue that AB5 would impact the flexibility and freedom of workers. States like Massachusetts, Virginia and New Jersey already have laws similar to AB5 in place.
Today on Lawyer 2 Lawyer we are going to discuss California’s AB5 Gig Work Bill, the gig economy and the impact on the workplace. And to do that we have got a great show for you today.
Our first guest is Diane Mulcahy. She is an Adjunct Lecturer at the Entrepreneurship Division at Babson College. She created and teaches the MBA class Entrepreneurship and the Gig Economy, which was named by Forbes.com as one of the Top 10 Most Innovative Business School Classes in the country.
Diane is the author of ‘The Gig Economy’ from HarperCollins, a best-selling book on Amazon that has been translated into five languages and featured widely in national media.
And welcome to the show Diane.
Diane Mulcahy: Thanks for having me.
Welcome to the show William.
William B. Gould: Thank you. Good to be with you.
William B. Gould: Yes. Well, of course traditionally here in California, in most jurisdictions, independent contractors are excluded from the coverage of basic labor laws and the AB5 really results from a growing inequality in our society between rich and poor, a greater use of the independent contractor exception from employee status beginning really in the 1970s in trucking and then in the taxis and other forms of transportation. And then of course more recently in connection with a wide variety of relationships, so some of them falling under the so-called gig economy category.
And what the Bill is designed to do is to provide a fairly rigid test, under which employee status is as a practical matter presumed unless the employer does not control the worker involved and unless the worker is not performing the essence or core essence of the employer’s business. And the third character factor being does the individual really have a separate business of their own.
And as, for instance in my house, when a plumber or electrician comes in to fix things up, he or she clearly is an independent contractor, that’s in essence.
What AB5 is about, it doesn’t touch the business of the right to organize, because traditionally that’s been a matter of federal law, although very recently the NLRB has excluded the drivers of Lyft and Uber from federal law coverage and California is now engaged in a discussion about whether it in light of that exclusion should or could assert jurisdiction for labor relations purposes.
Diane Mulcahy: Yeah. I mean the way that I talk about and define a gig economy is if you are not a full-time employee and in a full-time job. So it’s a fairly broad definition that includes consultants, independent contractors, freelancers and on-demand workers.
I mean this Bill is really targeted at on-demand workers, primarily those that work for gig economy platform companies like Uber, Lyft, TaskRabbit and Instacart. So it’s much more narrow in that sense.
There are many exemptions that are included in the law that really narrow the Bill’s focus to the platform companies.
William B. Gould: The Bill is not by any means primarily focused upon or limited to the platform companies, they happen to be at the heart of the dispute and they have publicity wise attracted a great deal of attention and you can say provided the kind of tipping point for the legislation.
By the way, if part-time employees were independent contractors and even bigger chunk of the workforce would be independent contractors, I think what the gig economy has done is to provide the kind of — expand the — it used to be prevalent in jazz, where jazz musicians went from club to club to a wide variety of tasks and the companies have been very innovative and very successful.
And of course what attracted California’s attention in the Bill that goes far beyond the gig economy is the fact that they were viewed as exploiting their workers, paying them far below what other companies providing the same service, I think approximately 30% difference between other companies that have been suing them under business practices legislation here in California.
Diane Mulcahy: I mean I think it’s designed to protect them in the same way that it protects all independent contractors, by extending rights and protections that aren’t normally available to them. I mean I think what’s interesting about our labor market and our labor regulations as it currently stands is that it essentially penalizes you if you are not a full-time employee.
So if you choose to work independently, which many independent contractors do work that way by choice, the majority of them in fact, or if you must work that way, if you are not able to get a full-time job, you really are taxed traditionally through a dedicated tax and you are stripped of many of the rights and protections that are awarded only to employees.
I think the concern with this Bill is, I am based in Boston, I live in Massachusetts and we have had a Bill like this on the books for a decade and there are plenty of independent contractors that are still working on gig economy platforms and elsewhere. The law has done very little. There has been no discernible impact on the ability to curb the growth of independent contractors here.
So I think it’s interesting that California chose to model their legislation on the same ABC test that has not had the impact that I think that they are looking for through this Bill in California.
I also think it’s interesting that California already has laws on the books that deal with the misclassification of workers. So if you look at like Senate Bill 459, which has been passed — it was passed in 2012, Governor Brown signed it; that already gives the state a way to go after companies that are misclassifying workers and find them and levy penalties and additional damages.
William B. Gould: She is quite right in pointing out that Massachusetts does have an ABC — so-called ABC test, which is what I described in connection with California, but so far as we can ascertain, the principal reason, and I take it as a given that she said that it’s had no effect is — the principal reason for that is that the Federal Arbitration Act of 1925 has served as a defense, and that is that every time the Supreme Court and a series of decisions has made it impossible to sue in many — under many employment laws, relegating the claims to employer control and promulgated arbitration procedures. And so far as we have been able to ascertain, the suits that were brought were dismissed in Massachusetts on the grounds of the Federal Arbitration Act.
California did learn I think in part from that experience by giving authority to both the Attorney General and to city attorneys to sue, which thus far have — those suits thus far have been deemed not to be covered by the Federal Arbitration Act, and so there is a way open for them to be resolved on their merits.
Diane Mulcahy: Yeah, I mean under this law there is a legal presumption that if people are working for you, then they are employees, and the burden of proof is on the employer to demonstrate if that’s not the case, but as a practical matter, in order for the law to have any effect, there has to be a lawsuit. I mean somebody has to say to the employer, we believe that you are misclassifying these workers and you have to demonstrate that.
So even though this law goes into effect January 1, it’s not like all of a sudden we will snap our fingers and everybody will be an employee and suddenly have all of the benefits and rights. The way the law is set up is that it’s enforced by legal actions and those legal actions need to take place and those can take a very long time. I mean the court decision that it’s based on, the Dynamex ruling took a decade. So I think there is a lot of uncertainty around how the lawsuits will go.
I also think the ABC test is still difficult to enforce. I mean the Massachusetts Attorney General wrote an advisory saying basically this is really difficult to enforce. The usual course of business isn’t defined and there is no judicial precedent that makes it easy to establish guidance and I think the test C, does the worker have a similar business, particularly now if you are talking about an Uber driver, I mean if they are driving for other companies, then are they customarily engaged in this type of work and do they have a similar independent business? It’s difficult.
The test is not well-defined, it’s not clear, it’s not objective and I think it’s going to be difficult to implement and enforce this law.
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And with us as well is William B. Gould, the IV, the Charles A. Beardsley Professor of Law, Emeritus at Stanford Law School and former Chairman of the National Labor Relations Board.
And with that, we will drop right back into the conversation.
William B. Gould: My, my, we have quite a problem here in California, don’t we? I think that there is — there will be a good deal of litigation about this, but I think when it comes to Uber and Lyft, it will be difficult to say that because drivers are working for more than one company, they are in a separate independent business when the employer determines what the fare will be and the employer determines what the percentage of the driver’s take will be, and the employer determines whether the driver will even be able to continue to work for the company or whether he will be or she will be deactivated under procedures that only the company decides for itself.
So I think that there is going to be — there is no doubt about the fact that there will be a good deal of litigation, and whenever there are lawyers present we know that that’s the experience.
But I think that fundamentally what we did here was we substituted through Dynamex, which was adopted by the legislature and really extended beyond wage and hour to other employment conditions, like unemployment compensation, workers’ compensation, anti-discrimination legislation, which of course independent contractors cannot avail themselves of. Even if you are harassed sexually or if you are discriminated against on the basis of race or sexual orientation, if you are an independent contractor, you are at the mercy of the party that you deal with.
So yes, there will be a good deal of litigation, but what we did through Dynamex was substitute a fairly clear standard for a wide variety of standard, so-called primary and secondary standards, which were more than a dozen in number and which by their very nature invited litigation.
Uber says that their drivers — they are not in the business of transportation, but they have put that they are in the business of providing an algorithmic way from the platform of making the drivers available to customers.
Well, thus far just every court in both the United States and in Europe that has been confronted with that issue has made short work of it and dismissed it. We will see what happens. We don’t know what the judges will say in the future, but the new standard is a much tighter and precise standard and should on balance in the years to come diminish litigation that would otherwise emerge under relatively vague standards in place here in California until Dynamex.
William B. Gould: There may well be regulations in labor, but I am not sure that they will — in the final analysis I think the courts, perhaps the Supreme Court will define.
I think the one thing that’s of concern and that will have to be flushed out in the litigation will be, if the employer has a number of businesses, in different places what happens then? I think that there is an opening for litigation on the so-called B standard of the ABC test, but my goodness as with so much in the way of legislation, we are dealing with legislation in the labor field that was enacted decades ago that is still being defined in the courts. If that was a basis for denying protection we will never have a protection at all.
The fact of the matter is that we’ve become a two-job and three-job economy sometimes because of the workers wishes, but very frequently because workers have to work two or three jobs to keep right on the table and to foster some kind of environment of opportunities for their children.
Diane Mulcahy: I don’t know. I mean it’s an odd piece of legislation in the sense that if you look at the tools that California has in its legislative and regulatory toolbox to address companies that hire independent workers, I mean, Dynamex is on the books, Senate Bill 459 is on the books. There are ways that there’s also legislation that they could pass that’s much more specific or that’s much more financially pecuniary to the employers’ tax legislation around companies that hire independent workers. There seem to be a lot of like much more concrete direct ways to deal with this issue rather than passing a piece of legislation that requires intense litigation in order to implement and enforce.
So I wonder what the intent is for the State. I mean, I think what’s most interesting about California when you’re talking about the politicians is they’re a little bit between a rock and a hard place, because they’re well supported by labor, but also by the technology companies that are implementing these business models that rely on independent workers. And so, it’s hard to take a side if you’re a politician and you rely on that financing. But, I think if California were really intent on extending protections and benefits or trying to get people companies to hire more employees, there are more direct ways to do it.
I mean, I think part of the problem with the Bill is that it relies on this very outdated classification system where you’re either an employee or an independent worker and it just doesn’t reflect the way the workforce works today. I mean, a lot of people are both, they are an employee and they work on the side or they are not an employee at all, they just have a portfolio of gigs. So they are an independent worker but for many different clients or employers.
So this classification system is having a lot of trouble. We’re having a lot of trouble kind of forcing the workforce to fit into that very old and outdated system.
William B. Gould: Thanks Craig. I would like to just sum up by saying I think that what has motivated California’s Act as it has is as I said at the outset the growing inequality which has emerged these past four decades and worsens the gap between rich and poor, I think that this is a theme that we’re going to see both in this country where the gap is worse and in many other Western countries where it exists as well.
A wide variety of remedies are in order to change this and I think that what finally brought this to a head in connection with AB5 was the realization that not only by workers and by unions but also by the business, some portions of the business community which were competed against unfairly, that the employees were being exploited severely and the reason that the Uber and Lyft companies and others toast-mates and the like are fighting this so severely is that putting $90 billion into fighting this on the ballot in 2020 is that they will lose so much in terms of profits, which otherwise would go to themselves rather than wages to the workers whose position has been diminished these past 40 years.
William B. Gould: Surely, surely. It’s [email protected], that’s probably the best way — that’s the email, best way to reach me.
William B. Gould: Thank you.
Diane Mulcahy: I think all signs in the short-term point towards this being dealt with at State level. Earlier this year, the Federal Labor Department had issued an opinion letter suggesting that the workers of gig economy platform companies are contractors. So the signal from this administration and the federal government has been that they are taking the foot off the gas pedal in terms of looking for ways to incentivize companies or force companies to hire employees instead of independent contractors or extend any rights or benefits or protections to independent contractors.
So that’s been the clear signal at the federal level. So I think we are going to — at least under next year is an election year, so everything can change, but as long as this administration continues, I think any changes will occur at the State level.
Diane Mulcahy: Yeah, I actually don’t think they’re available in the public sector either. I mean, it is true that if you’re a public employee, you still have access to a defined benefit pension, but if you look at those pensions, most of them are currently underfunded. So I think it’s a question mark whether those benefits will materialize going forward in the medium and long term for those workers.
And I think the public sector used to offer a sense of job security that was not at a level that was unavailable in the private sector and I don’t think that’s the case anymore either. I think there really is no job security in our economy and one of the reasons that workers are going to independent work is so that they have diverse streams of income and control over the work that they do. They feel like it’s too risky to put all their economic eggs so to speak into one employer’s basket. So I don’t think that sense of security is there.
Diane Mulcahy: In many ways, I don’t think this is anything new under the Sun. I mean, people have always worked independently. People in the trades, in the creative professions have worked independently overtime. I think the phenomenon of having being a full-time employee and having a single employer over the course of your career is relatively recent and may only end up being a blip, I don’t know, certainly it looks like that’s the way it’s going, is people return to this independent work.
I do think the technology has — the impact that technology has had is then to remove the friction in the marketplace that made it difficult for people to work independently on projects, assignments, tasks and gigs, and that’s why these platforms and not just Uber and Lyft but also platforms to connect MBAs to consulting projects and software developers to technology projects, all of the platforms and the ability to work remotely has really had a huge impact in driving the growth of independent work in a gig economy.
Diane Mulcahy: Yeah, I mean, the unions are really such a small and I don’t want to say insignificant but far or less powerful part of our labor market than they ever have been, and I think what we’re seeing is the erosion of the old employment model where employees were given the rights and the protections and the benefits that the unions fought so hard for.
I think where we’re left today is considering how do we want to treat workers, how do we want to treat anybody who works because this distinction, this artificial distinction between an employee and an independent contractor is just increasingly meaningless and blurred and gray.
And so the question in front of us is what are the rights and the protections and the benefits that we want to give to people who work regardless of how they choose to work, whether it’s full-time or part-time or some of the time or remotely or in an office or how or how much or where or when, we just need to because the workforce is becoming so fluid, so dynamic and so variable and so entrepreneurial that I think trying to force it into these old classifications and allocate benefits and protections based on your membership in one of those categories is a fairly rigid way of thinking compared to where we are today, and I think that really needs to be updated.
Well, we’ve had some wonderful guests today to talk about AB5 and the issues between independent contractors and employees.
William B. Gould, the IV, Charles A. Beardsley, Professor of Law Emeritus at Stanford Law School and Diane Mulcahy, an Adjunct Lecturer in Entrepreneurship Division at Babson College and the Author of The Gig Economy. Sounds like a great book.
Diane, would you like to wrap up with your quick final thoughts and your contact information and — as we close out?
Diane Mulcahy: Yeah, I mean, I think my final thoughts on AB5 are that this is a bill with a lot of bark and no bite. I think if you look at the Massachusetts experience, I think what’s going to happen when this law goes into effect in 2020 is it’s just going to start the litigation clock and as a practical matter for these companies and for the workers, very little will change.
So I hope that California looks at other ways to accomplish its objectives that are more direct and more effective. The best way for listeners to learn about the work that I do in the gig economy or get in touch with me is through my website which is dianemulcahy.com.
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I’m Craig Williams. Thanks for listening. You can join us next time for another great legal topic, when you want legal think Lawyer 2 Lawyer.
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