May 31, 2020 - 4:15pm

¡Ay Caramba! California’s Misclassification Mayhem


Executive Director, Labor Policy

The fifth day of May is better known in many quarters as Cinco de Mayo, a celebration of the day that Mexico defeated the French empire at the battle of San Puebla on May 5, 1862. Modern day revelers have been known to mark the occasion with margaritas and Coronas (the brewed variety) at their local watering hole, and to make it home safely, many thankfully avail themselves of ride-sharing platforms—a ubiquitous product of today’s so-called gig economy.  All of that could change, though, because the state of California has decided to wage yet another battle against technology companies that make such life-saving options possible.

On May 5, California Attorney General Xavier Becerra, as well as the city attorneys of San Diego, Los Angeles, and San Francisco, filed a lawsuit against Uber and Lyft alleging that the pair of gig economy companies are violating state law through their use of independent contractors who drive utilizing the companies’ rider-driver pairing technology.  The suit is based on California’s controversial AB 5, statute, which codified a 2018 California Supreme Court case known as Dynamex. That decision fundamentally rewrote the legal test for determining whether someone is an independent contractor rather than an employee.

The criteria established under the Dynamex decision and subsequently by AB 5 essentially create a presumption that a worker is an employee in most cases, and employers face a high bar to prove otherwise. This shift occurred by changing what is known as the “ABC” test for evaluating an employment relationship. Under part “B” of the previous ABC test, a business could usually satisfy that element if the work being performed was done outside of all physical locations of the business in question.  In contrast, the new standard removes that qualification, which makes it significantly more difficult for a business to classify someone as an independent contractor.

California’s relentless assault on companies that offer opportunities to independent contractors reflects a broader push to reclassify those individuals as employees under the dubious theory that they are being denied a minimum wage, overtime, and fringe benefits. Not surprisingly, one of the strongest drivers—pardon the pun—of the effort against gig-economy companies is organized labor, which has looked far and wide for any way to reverse its six-plus decade membership decline. Since independent contractors cannot unionize, successfully reclassifying them as employees would open the door for organizing efforts to that end.  

As this blog noted at the time the decision came down, the California Supreme Court’s Dynamex standard may put many employers’ entire business model in jeopardy, and the state’s lawsuit against Uber and Lyft underscores the point.  Especially in the middle of the current economic crisis, that’s hardly something to celebrate, but what makes things even worse is the Democrat-backed Protecting the Right to Organize (PRO) Act. That bill, which the House of Representatives has already passed, would codify the Dynamex ABC test and apply it nationwide. California’s lawsuit and the PRO Act make clear what organized labor and its political allies want, even if it means undermining businesses that offer greater economic opportunity, not to mention a safe ride home.  

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About the Author

About the Author

Sean P. Redmond
Executive Director, Labor Policy

Sean P. Redmond is Executive Director, Labor Policy at the U.S. Chamber of Commerce.