California

California's Work Rules Sabotage the Gig Economy

New Luddites have used the courts and the legislative process to throw that figurative wrench in the machine.

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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.

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55 responses to “California's Work Rules Sabotage the Gig Economy

  1. The gig economy exploits its workers and companies routinely illegally classify employees as contractors. A bit of a push back from the state is a good thing.

    You say that all of these rules cost companies money, but turn that around. “If you can’t afford to pay a living wage, you can’t afford to be in business. Asking people to work below poverty wages so you can own a business is entitlement at it’s finest.”

    1. Your “illegal” work practices is a classic example of illegal “because I say so” instead of illegal “because it caused harm” — robbery vs insider trading, or contract vs state coercion.

      You replace individual choices and voluntary contracting with state coercion.

      Fuck off, slaver.

    2. So it’s a “Better that people live and shit on the streets of San Francisco than have work arrangments that I don’t approve of.”

    3. Your progressive paradises have the highest levels of wealth inequality in the country. Maybe you should stop exporting your economic models to the rest of the country.

    4. I see your point to a degree, but the problem is that the conflict arises because the government stuck its oar in in the first place, but making ‘benefits ‘ manditory. Yes, it’s nice if everyone has healcare insurance, but why is it the government’s place to make this so? Governmens a e good at brute force andnbean counting, and historically awful at matters requiring subtlety, nuance, or tact. So they’re pretty much sure the screw this up. Why involve them?

    5. “Asking people to work below poverty wages so you can own a business is entitlement at it’s finest.”

      Bullshit. Businesses don’t ask prospective employees to do anything. They offer the opportunity for employment to those who are willing to accept the terms offered. You don’t like the terms? Fine- don’t take the job. But no- that’s not good enough for you. You want to keep everybody from having the opportunity to make the choice you just made, because you don’t like the idea that others won’t choose as you think they should.

      What a piece of work.

      1. *golf clap*

    6. MollyGodiva|12.28.18 @ 12:40AM|#
      “The gig economy exploits its workers and companies routinely illegally classify employees as contractors.”

      Yes, people who voluntarily are working for a company are being exploited by that company and you know this since you are a fucking lefty ignoramus.

    7. Yeah 79% of contractors prefer their situation to a j.o.b. I know I do. Bit if we don’t all spend our working years either spinning in a hamster wheel or living on welfare, lefties feel sad.Fuck off slaver.

    8. Oh Molly you blankety blank moron – or whatever Dan Akroyd used to say. You obviously do not and have not run your own small business. Insurance other than workman’s comp can be so much cheaper for better benefits and NO negotiation or applying for benefits. That alone is enough to hire a contractor rather than an employee. Contractors can indeed put more money in their own pockets with decent benefits that skip the BS of government regulation tyranny. It could go the other way, but then leave that vender and contract elsewhere. With 3.7% unemployment I’m sure you can do make a living.

    9. I hired contractors and I know that they received a handsome premium above that of staff employees for not receiving medical insurance and placing themselves in a position where they could be fired at moment’s notice. The good ones made big bucks working this way and preferred to work this way because they were able to take time off between gigs. However most worked themselves to death because they did not know how to say no. Why take away the choice to work this way if this is what you prefer?

  2. The obvious left leaning bias of Google and thier social media platforms is an obvious thing and should be stopped so they can be an impartial source rather than leftist propaganda…
    https://aladyofreason.wordpress.com/

    1. Another Johnny-bot in favor of government meddling…

      1. The government already meddled by giving them special civil protections.

        1. Which is exactly why more government meddling is needed.

          1. I prefer for then to just remove the protections.

  3. Today the term applies to anyone who fights a crusade against the modern economy.

    It’s probably just me but this seems like a bad analogy.

  4. Independent contractors are independent. That is the part socialists hate.
    But this reads like the companies can just refuse to deal with sole proprietors, and when everyone is incorporated, Bob’s your uncle.
    They choose when to work, they choose were to work, they choose what to accept as payment.
    The only hangup is the new test of ‘unrelated to the business’. I suspect that is open to legal challenge, as it will also destroy the franchise model.

  5. What is hilarious are liberals are outraged that Texas passed a law only allowing contractors that do not participate in BDS to participate in their public schools. Here liberals advocate for complete sub contract independence.

    1. Texas subcontractors who oppose Israel’s immoral, violent right-wing belligerence should declare a religious compulsion to oppose that authoritarian state restriction. Tie the right-wing rubes into knots by using their superstitious snowflake rules against them.

      1. Arthur L. Hicklib actually thinks that Texas subcontractors give a shit about either Israel or the Palestinians.

        1. The one liberal sub contractor does. She went to the national media to advocate for her right to anti semetism. Liberals have full on embraced anti semetic thought while calling others nazis.

          1. Israel does not need to worry about this idiot.

            Israel has one of the top high tech economies on the planet, punching far above its weight. It is a major technology development and export center. In medicine, agriculture and food production, water and energy management, the stuff that keeps us all alive, Israel is a world leader.

            Plus they have Wonder Woman so that settles it.

      2. Where should the NJLP stand on this case?

        A Polo Club in a Republican stronghold within walking distance of Manhattan wants to stop Natives Americans from smoking tobbacco and praying on their land.

  6. Great! The gig economy is a way for business to hire people for no money and no benefits and throw them away the minute they don’t need them.

    1. It would have been quicker to say you don’t approve of the choices some people make.

    2. Great! The gig economy is a way for people to get work when they want it and tell the business to take a hike the minute they don’t need them.

    3. You mean it is like buying something at a crafts fair or going to a rock concert.

    4. Atillahn……Or…the gig economy could be away for people to make….EXTRA MONEY….if they want to.

      Maybe they have a regular job and chose to work a gig on their off days…?

  7. Politics in California and (NY-Illinois)? are FUBAR. It remains a mystery why the Directors of the Tech Firms, start-ups or VCs ok expansion or reside in these states.

    1. Those tech gurus ain’t so bright when it comes to things out of their field. Slowly they will be schooled by reality.

  8. “Great! The gig economy is a way for business to hire people for no money and no benefits and throw them away the minute they don’t need them.”

    Actually, it would have been quicker to say you’re a fucking lefty ignoramus. The sort of people who *KNOW* what everyone should want and are more than willing to have the government pull guns to force them to do that.
    Murderous piece of shit hiding behind a supposed concern for others; fuck off. Die a slow and painful death; you deserve it.

  9. As a freelance “independent contractor” I am going to be livid beyond belief if the government fucks up my sweet gig.

    1. Hate to have to tell you, but fucking up sweet gigs is what the government does.

      1. You don’t have to tell me, they already fucked up my online poker gig. :/

  10. I have worked for the same company as both and there are upsides and downsides either way. One advantage of being an IC is you can take on sidework and people in my company do that. As employee I cannot work for anyone else. There is also more flexibility as as IC.

    Many people will find they can make more money as an IC than employee, in other cases not. For me the Obamacare premiums for my wife and I in our age bracket were too high as we are over the subsidy range in income. I was able to negotiate a switch to employment contract but it is not a huge change overall, just works out better for me.

    My wife’s job seems to just keep everyone below the number of hours where they would have to offer insurance. Which is what happens when you mandate things.

    My philosophy is we are each an independent business, our own little .com. If you are an employee you currently have one client. It is up to the individual to find what works best.

    Government screws up everything.

    1. “As employee I cannot work for anyone else. ”

      Says who? Oh yeah – the corp puppet masters.

      how about this; laws that state such mandates are illegal, and no employer may interfere with, or restrict the right of its employees to work for whomever they choose?

      1. Because that is in the contract I agreed to.

        I could have negotiated about it but really I don’t want to at this point anyway.

        I will trade off some income for better lifestyle. My choice.

        I still could negotiate that if someone offered me a side job I wanted. Just go to the suites and ask. A verbal agreement would suffice.

      2. How quickly we jump to More Laws! instead of a market solution which is working just fine for me currently.

    2. You say “It is up to the individual to find what works best.”

      Lobbying the state so that it mandates your employer to provide you permanent employment seems to work fine for a lot of people.

  11. So, I run a small post production company. No full-time employees besides me. I’m hired on a gig basis (flat fee) by various production companies, ad agencies, and media companies to do work for them. These jobs last maybe a week, maybe two at most, and I can do more than one at a time. However, occasionally, I get more work than I can handle myself, so I hire out to others. I give them half the $ I’m getting for the job (since it’s my client relationship), they work out of their own studios, and deliver to me, which I deliver to the client. Most of the people I hire have this arrangement with many other small firms like mine. Most don’t have DBAs or LLCs.

    Under Dynamex, since the work is the same work my own firm performs (part B), I can no longer hire them this way. Even though I meet the Part A and C test, it fails on Part B. Since there is no employment number threshold in this ruling, I have to hire them as full time employees. For a week (or two). It’s patently absurd. It was difficult enough under the previous arrangement, but it generally worked (although I had a guy once claim unemployment after the job was over, which he was denied by the EEOC).

    Or, I hire only trusted people and 1099 them as I have done before, skirting the rules, or, don’t hire them at all. Some combination of which is likely.

    1. Doesn’t sound like it would apply since you are not really an employer. You are just contracting out some work.

      Well the government will find a way to screw us one way or the other.

  12. 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.

    That’s not the right sample. If some people are situated to take advantage of a gig economy, and some are not, obviously the former will be the ones working in the gig economy, and the latter will be objecting. What percentage among everyone who needs a job prefer gig economy working arrangements?

    Also, note how many comments critiquing objections to the gig economy offer nothing but ideology, or rely on ideology to deduce purported facts on the basis of pure theory. Those comments should be discounted to zero. Facts aren’t what theory predicts they will be, facts are what experience discloses them to be.

    If the facts refute your theory, it is the theory that ought to get discarded. Libertarians resist doing that. It’s a chronic weakness in the libertarian movement.

    1. Okay, first, this is a libertarian website (despite the publishers best efforts.) What do you expect? Don’t be daft.

      Second, you are flat our wrong about the sample. You should always ask those involved in the process if they would like a change. Are you suggesting that there are people who would rather be unemployed than work in a gig job? And that these people, who choose unemployment over a job, somehow have a better understanding of what people working gigs prefer?

      Penultimately, just look at the comments: Senor H, ElvisIsReal, and others DO talk about their current situation. And me. I am in financial sales. I could be W2 or 1099. I choose to be W2 because it is best for my family, even if I could make 1099 work. But I CHOOSE this. And this is what matters.

      Finally, fuck off slaver. The only libertarian movement you need to be concerned with is moving you twattish self back to Huffpo or Wapo or whatever whole you crawled out of.

  13. “What percentage among everyone who needs a job prefer gig economy working arrangements?”

    I give up- what percentage?

    Bottom line: Nobody owes you a living. It’s your responsibility as a functioning adult to figure out your way in the world.

  14. ” If some people are situated to take advantage of a gig economy, and some are not, obviously the former will be the ones working in the gig economy, and the latter will be objecting. What percentage among everyone who needs a job prefer gig economy working arrangements?”
    As the article illustrates the state of California is seeking to ban the gig economy. The percentage of people who prefer jobs is not relevant to the discussion. The state isn’t trying to ban jobs. They are trying to prevent people who prefer to work independently from having that option. So yeah. Fuck off slaver.

  15. All the politicians care about is power and money. It is pretty easy to see why the want to crush the gig economy.

  16. Oh, so not letting the corps treat people like serfs is bad? lol.
    Seems to be a rash of this Chicken-Little bullshit going on about such things.

  17. This will be good for the rest of the nation. The sooner that their crazy laws cause the state to go bankrupt and fall into economic disarray the sooner the tech companies will move to other states that have saner laws and much lower taxes.

  18. What I have never been able to understand is why our rulers (AKA elected representatives) since they know how all business should be transacted, don’t just take over all businesses, and run them with renown government efficiency and fairness!

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  20. I usually do not agree with Californian Courts but I think the idea here is that they are trying to stop wheat might be called Fraud or Abuse of Employees.

    Classifying them as Contactors when they actually work foll time in a 9-5 job and are permeant Employees is the problem.

    Maybe they could set a few metrics like:

    1 -> Percentage of Work Force that can be Contractors.

    2 ->Length of time a person could be a Contractor.

    3-> Project based, one that has a beginning and end.

    I worked for a Contractor as a SUB to install Direct TV for a while and everyone had to work a set schedule (6 days a week), could not say no to an assignment, had to give 15 days notice for a day off, and were graded for each install. This was really almost Slavery…

    1. How so? Those were the conditions you agreed to. Could have just said no and found something more suitable.

      So you get 1099 and no benefits. If the company had to offer that they could either just cut the hourly rate to make up the difference or keep everyone below the number of hours where they have to provide insurance.

      At least the job was there when you needed work. I have been there. Better than nothing and you can always keep looking.

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  22. So you mean California is a horrible place to try and make a living, start a business, or retire?

    ….who knew.

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