SBE News

GSBE Weekly Update 09/20/2018

Just who is an independent contractor?

GSBE Golden State Builders ExchangesA sweeping new California Supreme Court ruling restricting who is an independent contractor is shaking up an exceptionally diverse range of industries.

The ruling, issued in April, affects an estimated 2 million independent contractors working in healthcare, beauty salons, gig economy jobs like Uber and Lyft, journalism, music, real estate, education, financial planning, agriculture, construction, technology, insurance, transportation and more.

The decision is praised by the California Labor Federation as offering workers protections like minimum wage, unemployment, workers’ compensation and disability insurance. But some independent contractors say they like their freedom and have no interest in being employees.

“The interesting rub on this whole issue it’s not a traditional business versus labor fight,” said Jennifer Barerra, senior vice president of policy for the California Chamber of Commerce. “This is really about two different forms of the workforce – a worker vs. worker situation. It’s about whether employees get to choose what status they want to be and what works best for their lifestyle.”

The ruling on Dynamex Operations West Inc. vs. Superior Court of Los Angeles provides a new three-part “ABC” test to determine who can be an independent contractor. The ruling says that the worker must (A) be free from control and direction from the hiring business, (B) must perform work outside the scope of the hiring entity’s usual business and (C) the worker must have an independent business of the same nature of work (demonstrated by taking out a business license or marketing services, etc.).

The biggest change is Part B, which was never included under previous law.

Dynamex is a same-day courier and delivery company that classified all its drivers as employees until 2004 when it reclassified them as independent contractors. Though the drivers could set their own schedules, they had to wear Dynamex uniforms and notify the company of their availability. The state Supreme Court ruled that the drivers should be employees.

The court ruling has put doctors in a bind who are now caught between this ruling and the state Business and Professions Code, which bars hospitals from directly employing most physicians. Many doctors serve as independent contractors at several hospitals – sometimes working a few shifts at safety net hospitals, which provide lower reimbursement rates, and other shifts at higher-end hospitals which pay more. Because they set their own schedules, they can have more time to spend with children and family if they choose.

“I think this was not meant to include physicians because the doctors who are independent contractors like being independent contractors,” said Dr. Aimee Moulin, immediate past president of the California Chapter of the American College of Emergency Room Physicians. “They don’t need the same labor protections that other employees do.”

Gail Blanchard-Saiger, vice president and counsel on labor and employment for the California Hospital Association, said the ruling potentially exposes hospitals and other employers to a huge liability in fines. It may also cause some hospitals to cut back on wellness classes provided by independent contractors such as yoga classes, CPR and birthing classes.

The ruling has caused Neighborhood Music School, a 104-year-old educational organization in Los Angeles that serves 350 students mostly ages 5-21, to throw out its business model that has worked for over a century. It has reclassified all its music teachers as part-time employees, in many cases over their objections.

“We have less than a $1 million budget,” said Connie St. John, executive director of the school. “If the (California Employment Development Department) came after us, we couldn’t keep our doors open.”

The musicians who work for the school typically also have private students and perform with other groups. “The teachers do not want to be classified as employees,” said St. John. “They do not want to check to take a day off or to take off to tour for six weeks.”

The EDD ordered the school to reclassify its workers as part-time three years ago but the school appealed the decision and won. The EDD appealed that decision but the school won again. “We were thinking we’re good now,” St. John said. “We won twice.” But with the Dynamex ruling, the school quickly realized it had to act fast. “We became a sitting duck.”

Randy Dotinga, former president of the American Society of Journalists and Authors and a freelance writer based in San Diego, said the ruling is already concerning to his group’s members. Some writers have already lost work because of the decision. While they support workers who want employee status, they also want flexibility for those who don’t.

“As independent contractors, many of us our able to have more fulfilling, lucrative, secure jobs that aren’t possible in the news industry these days,” he said. “I feel I make more money, am more secure than I could have been in the news industry. I’ve been doing this almost 20 years. This works for me, this allows me to have a successful writing career. I don’t want to lose my job.”

Hair stylists are also caught up in the changes. Many work as independent contractors for salons, which rent them a station. But Daniel Muller, a San Jose attorney who works with the Professional Association, said it shouldn’t be too hard for them to keep their independent status if they choose to. Salon owners should just be sure to only rent them space and not get involved with collecting money or booking appointments or putting up a web site that identifies stylists as part of their team. “The devil is in the details,” Muller said.


SB 826, Jackson. Corporations: boards of directors

The General Corporation Law provides for the formation of domestic general corporations by the execution and filing of articles of incorporation with the Secretary of State. Under that law, the business and affairs of these corporations are generally managed by, and all corporate powers exercised by or under, the direction of their boards of directors, and each director is elected by shareholder vote, with certain exceptions, as specified. That law also allows foreign corporations to transact intrastate business by obtaining certificates of qualification from the Secretary of State and requires foreign corporations that meet certain criteria to comply with specified provisions applicable to domestic general corporations to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated.

This bill, no later than the close of the 2019 calendar year, would require a domestic general corporation or foreign corporation that is a publicly held corporation, as defined, whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California to have a minimum of one female, as defined, on its board of directors, as specified. No later than the close of the 2021 calendar year, the bill would increase that required minimum number to 2 female directors if the corporation has 5 directors or to 3 female directors if the corporation has 6 or more directors. The bill would require, on or before specified dates, the Secretary of State to publish various reports on its Internet Web site documenting, among other things, the number of corporations in compliance with these provisions. The bill would also authorize the Secretary of State to impose fines for violations of the bill, as specified, and would provide that moneys from these fines are to be available, upon appropriation, to offset the cost of administering the bill.