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California Assembly Passes Independent Contractor Bill

June 17, 2019
Bill that advances to state Senate codifies state Supreme Court ruling banning most independent contractors.

The California Assembly passed a bill that if approved by the state Senate would codify into law a 2018 California Supreme Court decision that makes it nearly impossible for independent contractors to be classified as anything other than employees.

Although the Supreme Court decision currently is under appeal in the Ninth Circuit U.S. Court of Appeals, other courts have upheld it and the Ninth Circuit earlier ruled that it could be applied retroactively.

In April 2018 the Supreme Court decision overturned the traditional test used to decide which workers were considered independent contractors and which ones were defined as employees. To do so, the court created a new rigid three-part test that makes it almost impossible for individuals who consider themselves to be independent contractors to continue to maintain that status.

The decision, which involved a driver for the Dynamex Inc. nationwide parcel delivery company, was widely seen as virtually wiping out independent contractor status even where it has been well-established since the advent of a particular profession, such as truck driving.

The court upended a more flexible multi-part standard for defining independent contractors which had been in place for three decades called the Borello test, and replaced it with a simple three-pronged “ABC Test.” One of the new test’s three criteria holds that no one can be considered an independent contractor whose services are being used by an employer who is in the same line of business.

As a result, truck driver owner-operators who have leased themselves and their trucks to for-hire and private trucking fleets since the industry’s beginnings in the early 20th Century can no longer consider themselves to be independent contractors.

Making Unions Happy

Because antitrust law makes it impossible for unions to organize independent contractors, who are seen as individual small businesses, the change also serves as an enormous boon for the Teamsters union, which is waging an ongoing campaign seeking to organize Uber and Lyft drivers, as well as port drayage truckers, most of whom are independents.

If approved by the California Senate, the Assembly bill would incorporate the Supreme Court’s holding into state law, rendering irrelevant current court challenges to its decision.

Assembly member Lorena Gonzalez Fletcher, who introduced the legislation, stated that inserting the decision into law “offers a quicker resolution than fighting in court for years over its implications for issues like workers’ compensation and unemployment insurance.”

The Assembly bill would not cover everyone. As it made its way through deliberations that took place before its passage, exemptions were added for physicians, dentists, lawyers, architects, accountants, engineers, insurance agents, investment advisers, real estate agents, hairstylists and barbers who rent booths at salons, human-resources professionals with advanced degrees, along with direct sellers and marketers, such as Avon, Mary Kay and Amway representatives. (There was no word about whether the bill also exempts hosts of Tupperware parties.)

Business groups are hoping that over the next month while the Assembly bill is being deliberated by the state Senate, the senators can be persuaded to add other job categories to the exemptions, including workers who perform short-term projects or those people who control their own schedules—which describes many workers in the new gig economy and are used widely by California’s two iconic business sectors: high-tech and the entertainment industry.

Given the strong influence that unions like the Teamsters exert in a state where Democrats control the state legislature and all top elective offices, including the governership, the prospects for truck owner-operators’ independent status to be preserved when the final version of the legislation becomes law seems very much in doubt at this point.

The only possible way to save owner-operator status would be for federal courts to grant a similar argument to the one being made by the current legal opponents of the Dynamex decision: That it violates federal law asserting jurisdiction over trucking operations considered part of interstate commerce. The problem is that federal courts have been reluctant to interfere in contract-versus-employee laws made by the states.

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