Labor Unions

California's Politically Powerful Unions Aim To Crush Sharing Economy

A state Supreme Court ruling sets a new, higher bar for determining when workers can count as independent contractors rather than employees. It might ruin some online firms' business models.

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Free-market economists love to talk about "creative destruction." Brilliant new ideas flourish and creative entrepreneurs find better ways to serve customers. Encrusted, poor-performing businesses recognize that if the new "thing" takes off, their old cash cow might be destroyed. Rather than play fair and up their game, the Old School folks turn to government, courts, or even violence to crush the emerging competition.

Think of that age-old battle between new ideas and established industries as a cat-and-mouse game, or that Looney Tunes cartoon where a determined Wile E. Coyote tries to ensnare Road Runner. We always assume that the forces of creation ultimately will evade the predators. We've all become accustomed to an immeasurable number of innovations, after all. But what happens when cat catches mouse or coyote grabs the bird? We are about to see.

Because of the far-reaching California Supreme Court decision last year known as Dynamex, and legislation now winding its way through the state capitol, some of the newest and most innovative businesses are facing an existential threat from shrieking violets who tremble at the sight of competitors. The case involved a same-delivery service that turned its drivers from employees into contractors, but it applies to many of the state's most-popular companies.

Basically, California unions have unparalleled political power and are about to force companies with business models based entirely on using contract labor to replace those workers with full-time, benefited employees—and to follow a labor code designed more for a 1950s-era factory workforce rather than a modern, flexible one.

Web-based entrepreneurs have dramatically improved our lives and done so with a quickness that's quite astounding. Remember when the only way to get to the downtown area from an airport was to wait in a queue for an expensive and uncomfortable taxicab—or hop on a crammed shuttle that crawled from stop to stop? Now you type a destination on your phone, a friendly driver in a late-model car picks you up and the trip is billed automatically.

This is life-changing stuff. My 84-year-old mom gave up driving after Uber and Lyft solved her mobility problems. When she needs groceries, she uses an app that delivers them to her door. My daughter needed to move to a new apartment. "I don't need your truck, Dad." She used the Lugg app, which dispatched a team of contract haulers. I rarely go to the store. I order everything from cat litter to car parts on Amazon Prime. The order shows up at my door the next day.

Those conveniences might be going away—or getting far more expensive—here in innovation-loving California. In that Dynamex decision, California's high-court justices crafted a strict "ABC test" to determine when a company may use contractors rather than workers on the full-time payroll.

The only way a company can use contract labor is if a) the company doesn't direct the worker's performance; b) the worker provides work that's not central to the company's business (i.e., a transportation company that contracts with a plumber); and c) the worker intends to operate an independent contracting firm. Few of these newfangled companies can meet all three standards.

These businesses exist because they figured a way around poorly designed systems that have crushed creativity and competition. Don't give me any nonsense about the unfairness of letting upstarts evade the rules. The rules were never created to be fair. Taxi companies, for instance, back the medallion system, whereby government limits the number of cabs that can legally drive on city streets.

They do so to limit competition and enrich themselves despite the blather about protecting public safety and workers' rights. In San Diego, a report showed that the medallion cost was so high that cabbies spent dangerously long periods of time on the road and averaged only $5 an hour. These app-based companies have opened up a new world of flexible hours and unlimited opportunities.

The Legislature could fix the Dynamex problem but instead is embracing a union-backed measure (Assembly Bill 5) that would codify the decision and apply it to all businesses. Many emergent tech companies are not yet profitable, so adding massive new employee costs could spell doom. The big question is if their lobbyists can secure exemptions that let them hobble along. But think of all the unknown innovators that will never get off the ground if this retrograde measure passes.

I'd like to think that the fresh breeze of innovation will always win out over the dark forces of protectionism and decay. But that's not necessarily going to happen. With Dynamex and A.B. 5, Wile E. Coyote really does have Road Runner by the throat. Soon enough we'll see if the bird can wriggle out from his latest jam or will end up like the rest of us – waiting in a long line for a dirty and expensive cab that can't figure out how to take our credit card.

This column was first published by the Orange County Register.

Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at sgreenhut@rstreet.org.

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  1. So it is more like the coyote bribed the legislature to impose strict speed limits on the road runner so he can’t get away?

    Actually, only the newly invented “b)” part of that test is an issue. As I understood it, before the courts ‘splaind it to me’, the operators of ride share vehicles are in fact independent businessmen, owning the equipment and determining their own hours of operation, and within the limits of a bidding app, setting their own rates. Perhaps the simplest solution to the proposed legislation is for the sharing companies to require their contractors to incorporate.

    About half of my programming career was contract work, and half was “employee” status. The only difference was as a contractor I paid my own payroll taxes, and when incorporated, had lots of wonderful tax deductions. The terrible record keeping burden took about 10 minutes a week by using cheap software. The only difference between sole proprietor and corporation was a couple hundred buck to the state, and an annual filing. I used the corporation when it was required by the client for insurance purposes, and to make clear the independent relationship.

    The issue here is, as always, individual freedom .vs government control. Guess which side CA and the unions are on.

    Welcome to the revolution.

    1. +100

  2. The whole point of progressives is to use the coercive power of the government to force people to make sacrifices for the greater good. How dare you selfishly deprive these workers of proper wages and benefits–and just so your selfish ass can have access to cheap and easy transportation, etc.?! It’s not so different from the anti-free trade argument either–that we shouldn’t be free to buy imports for less at the expense of our fellow Americans, who are being deprived of higher paying jobs with benefits by our free trade selfishness. That’s why we need socialism–markets don’t have a conscience!

    The way to counter this in California is to emphasize the way this will hurt other progressive goals. For instance, single moms need babysitting apps and cheap transportation–and many of those mothers are minorities and the relatively poor. The other thing we might go after is the impact this will have on global warming. If Uber and Lyft are a substitute for car ownership and their drivers favor cars with better mileage than the average person would buy or if they’re just keeping more cars from being sold, then hurting Uber and Lyft is bad if you’re concerned about greenhouse gas emissions.

    In fact, Uber and Lyft are both deep into financing autonomous and electric cars, and if you hurt their business model, you’re hurting the most obvious means by which autonomous and electrically powered cars will become widely used by the general public. Those companies are on the cusp of making the “solution” to global warming affordable for people who can’t afford to buy a car.

    Pulling their financing may delay their efforts to pursue a fleet of company owned, autonomous electric cars for years. Take away the viability of operating in a juicy commuter market like California, and, yeah, financing the way to that finish line makes much less sense for them than it did before. Meanwhile, polar bear cubs with big sad eyes are starving to death because their mothers can’t swim the increasing distances back to them due to the melting ice–it’s science! And all this suffering just because you selfishly insisted on benefits for Uber drivers?

    1. But some large portion of Progressives cannot connect the dots, in this case the producers/workers that they want to protect and pay generously, and the consumers/buyers that they want to protect and make goods and services cost very little (if not free).

      This is not even basic math, just a recognition of how the costs of production relate to prices. How to reason with people who have a preschoolers understanding of economics?

      1. If they understand minority women and polar bears = good. They may not be able to understand why Uber and Lyft are good for them, but if you make the association, they don’t need to understand anything else.

  3. California people go further up in arms about their cost of living while voting to continue the same designs in 3..2..1

    1. Californians are insane by the “continuing to do the same thing (voting D) and expecting different results” standard.

      1. I think it was Tip O’Neal who made the famous statement about how, “All politics is local”. He was from Massachusetts.

        In California, all politics is national at the very least. The driving psychology is, “Think globally, act locally”. It’s been that way for a long time.

        Dead serious, my fellow Californians send Democrats to Sacramento because of what Republicans are doing elsewhere in the country. Some Republican in the Midwest or the South says something stupid about “legitimate rape”, they’res sending more Democrats to Sacramento. Local politics in California isn’t local at all. They may have less than 1% of the world’s population, but they’re gunning to save the world from global warming using state regulations.

        The other thing that’s hard to get across to people living elsewhere is the dual personality of the voters here. Californians are much more conservative than the Democrats they send to Sacramento–and they vote for them almost as an act of penance–for supposedly being better than them.

        Perhaps the best example: Californians will flood Sacramento with Democrats because Republicans are supposedly intolerant–and in the same election, they’ll vote to make gay marriage illegal at a state constitution level with Proposition 8. It really is like voting for a priesthood. They opposed gay marriage themselves, but they want the government to be run by people who are more tolerant than they are.

        You can see this kind of self-hatred as a dominant force in the 2016 election. They called the white, blue collar, middle class of the Midwest stupid, racist, homophobic, xenophobic, misogynist–all the worst things in the book. And the white blue collar middle class of the Midwest still didn’t vote for Hillary Clinton! What’s wrong with them? Why don’t they find the fact that they should hate themselves persuasive.

        They are far more conservative than the people they send to Sacramento, and they hate themselves for it–and they vote for supposedly better people to force them to stop being racist and selfish and destroying the planet. They need to understand the virtues of selfishness and the authority of their own personal preferences over those of virtuous experts. We probably can’t get them to stop seeing the world in those terms, so if we want them to come around on the issues, we probably need to speak to them in their own language.

      2. Some must be afflicted with a more profound level of idiocy: thinking that voting for something makes it true. Too many people seem to think that “democracy” controls reality.

        1. Like I said above, the people they vote for are far to the left of them.

          They vote for those people for the same reason Catholics respect priests. They expect the priests to be better than the laity. They want to give power to people who are better than them–and make them be good.

          The essentials of the progressive argument against libertarianism are in in one chapter of the Brothers Karamzov titled, “The Grand Inquisitor”.

          Our neocortex evolved to accommodate the benefits of religion, and progressives are remarkably religious people. They want to make sacrifices on faith. They want to be part of something bigger than themselves. They want to believe in an apocalypse. They want to save the world. They may not believe in the supernatural, but 200 years ago, pretty much everything seemed supernatural. Nobody knew why things happen or how the natural world worked.

          Our neocortex hasn’t evolved much over 200 years, and when you watch the way progressives in California think, it’s easy to see that.

          1. Or as I was taught growing up in the Bible Belt, “if you don’t believe in something, you’ll fall for anything”

          2. “They may not believe in the supernatural”

            U true. They believe in 57 genders, and AGW. So they most certainly believe in supernatural phenomena.

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  5. I’d like to think that the fresh breeze of innovation will always win out over the dark forces of protectionism and decay.

    In the long term, yes. In the short term, protectionism and decay wreak havoc.
    Consider slavery. It worked for millenia because it was profitable only where supervision was easy. It doesn’t work in factories or any industry which depends on thinking. Nazi factory slaves were also saboteurs and all their guards sure didn’t improve efficiency. Southern slave labor only survived as long as it did because the government backed it.

    California and other proggie havens like NYC and Chicago and Seattle are similarly only held together because governments tilt the table with other peoples’ money. Eventually they will face reality on their own and collapse. It’s a fucking mess in the meantime, but that also means they are accelerating the rush into collapse.

  6. With Dynamex and A.B. 5, Wile E. Coyote really does have Road Runner by the throat. Soon enough we’ll see if the bird can wriggle out from his latest jam or will end up like the rest of us

    Bad analogy – In reality, Wile E is the innovator, the roadrunner is old-line union business, and government is the sheepdog that beats Wile E senseless.

    Morning Ralph/Morning Sam

    1. Better, but I suspect that no union-sanctioned, government-produced cartoon would be funny or even mildly entertaining.

  7. The Dills Act was passed in 1978, and it is what gave public service unions the right to collective bargaining. The “Dills Act” was California Senate Bill 839, the “State Employer-Employee Relations Act (SEERA).”. It was named after its sponsor, state senator Ralph C. Dills.

    Should’a been named “moonbeam”.

  8. You can be sure – The Insurance Industry won’t be subject to this. They are established, and their PACs are established.

    I work both as one of the largest independent independent (contractor) work forces in the Insurance industry, and in spare time also for Uber. The relationship I have with both is identical.

    This bill could effectively kill large parts of the Insurance industry, so that Californians will only have former Captive Agents (Allstate, State Farm) that are turned into employees, and will likely lose access to all the other carriers that go thru independent agents or brokers. Of course, the pols in California may look at this as a feature, and not a bug, when it comes to Health Insurance

  9. This will soon be followed up by mandatory union dues.

    1. I guess Janus has not achieved “Superprecednt” status like Roe

  10. Never fear, you can always rely on the California legislature to do the wrong thing. If nothing else, they are consistent. They produce some great freedom-reducing virtue-signaling legislation. Not so much other kinds of legislation.

  11. RBG blurted during oral argument NEW PRIME vs OLIVEIRA, “..the whole thing is a scam anyway.” Referring to contract employment. The court agreed.

  12. I think it’s great that California serves as a laboratory for progressive ideas! Please progress harder, California!

  13. Liberty and innovation will continue to thrive, just in a different state.

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