Independent contractor or employee? How California’s new classification rules affect you

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Rideshare companies like Uber heavily rely on independent contractors as drivers. Credit: Stock Catalog/CC BY 2.0.

The California Supreme court issued a landmark ruling last year that rewrote rules for the gig economy and all independent contractors, including Lyft and Uber drivers, hairdressers, truckers, freelance writers, and more.

The Dynamex ruling, which refers to the company that was at the center of the lawsuit, says businesses that rely on these workers need to treat them as employees and offer them benefits.

Michael Chasalow, business law professor at USC, tells Press Play that the motivation behind the ruling is to help workers who might otherwise be exploited if they’re classified as independent contractors. “Unfortunately when possible, some entities are going to say, ‘fine, then we won't hire people in California.’”

He says the ruling affects wage orders, like minimum wage, overtime, maximum hours worked, and breaks.

The ABC test

Chasalow explains that the Dynamex ruling uses the ABC test to change how workers are classified.

A: If the employer controls the manner and means through which someone executes a task, then that worker is an employee; and if they don't, then they're an independent contractor.
B: This part is new, and it says if the employer hires people to do work that their business ordinarily does, then they’re an employee going forward.
C: Someone is an independent contractor and not an employee if they perform a special trade or business they established themselves.  

Chasalow says when you have employees, you’re subject to several rules. You must withhold federal and state taxes; pay those taxes; pay social security and Medicare; are subject to a minimum wage; responsible for layoffs.

We should note that KCRW hires freelancers, and is trying to figure out what the ruling means for our organization.

“I don't know that it's going to change journalism. But it might change some of the costs,” Chasalow says. “Most employers are being extra careful. And so they're just classifying people as employees, which of course increases the cost.”

KCRW asked listeners to share personal stories of being independent contractors, and how the new ruling affects them:

John Conroy has been a freelance writer for a sports business magazine for nearly 10 years.

“I will be losing several thousands of dollars because of this ruling. I’ve had the editor I’ve been working with for 10 years get in touch with me to tell me that they wouldn’t be using any of the California writers anymore because of the B part of the ABC test. And because the hiring entity is a publisher and I am a writer, they would have to classify me as an employee.

“My understanding is that I could ghostwrite for a med-tech executive who wanted to place a piece in a med-tech magazine. But I cannot write for said magazine because I’d qualify as an employee.

“I’ve had to declare early social security, and I need this money desperately. I’ve been writing since I left college. And I’m just hoping that the law that comes into effect will protect vulnerable workers and will allow people like me and others to continue working.”

James [last name withheld] has been a freelancer in film for some 20 years, and a rideshare driver for a few years.

“With the film industry, you felt like there were rules and a well-defined community. There was a sense of structure on which you could depend.

“I drove a Lyft-lease car for 10 months two years ago, and they just changed the terms of the deal five times in those 10 months. I've been driving for Uber over three years, and it's the same kind of thing. Recently you get an email [saying] the terms of service have changed, and ‘We're going to cut your pay by 25 percent. Have a nice day.’ We only even got the ability to speak to a human person to complain about anything quite recently. So it feels like the wild west of freelancing, and that there are no rules, there's no recourse. The company is this faceless internet behemoth… They want to replace us all with robots. So more than ever, you can feel the faceless and heartless devaluation of labor.”

Paz Kahana is a salon owner, and she says she lost many talented technicians after the ruling.

“I worked so hard to have a business where I could have individuals really enjoy where they’re going and really pursue their talents. And then I basically got handed a death sentence of having 19 employees.

“And if you're a very small business, you’re set up not to have to monitor adults and let adults be professional adults. And all of a sudden, all my time essentially got funneled into management.”

Noreen Valdez is a tutoring coordinator for the nonprofit Catholic Charities, where she helps underprivileged students reach grade level in reading, writing, and math.

“My boss has put a lot of regulations on what I do. I've asked her for fulltime work when Catholic Charities was hiring, and she basically made every excuse not to hire me full time, and to keep me at arm's length. Now she's cutting my hours, and it just seems to be a really big dilemma.”

David Swanson is a freelance writer and photographer specializing in travel since 1995.

“One of the outlets that I've been writing for since about 2003-2004 is no longer buying my work. It is contracting people out of state. And so I have a very direct impact from Dynamex, even before the amendments that have gone through.”

Joey Raburn is Postmates delivery driver.

“I'm a classified as a contractor, and I get paid per deliveries. I've been trying to find a lawyer to have me classified as an employee. Other individuals are in the same position as well. We do more than one gig to get by. But it's a challenge in this economy because most of us were working like 10 or 12 hours a day just to make ends meet, and we don't get overtime.”

--Written by Amy Ta, produced by Rosalie Atkinson & Adriana Cargill