
California Supreme Court Transforms the Test for Who Is an Employee - neonate
https://news.bloomberglaw.com/daily-labor-report/calif-supreme-court-changes-test-for-who-is-an-employee
======
hardwaresofton
Here is the new test (the ABC test if you're into unnecessary pet names for
things):

> If A, B, or C isn’t present, the worker is considered an employee.

> A. Freedom from control over how to perform the service

> B. Service is outside the business' normal variety or workplace

> C. Worker is engaged in independently established role

So if _any one_ of those conditions isn't the case, you _are_ an employee
under the law. I see people in this thread wondering how it'll affect
companies like Uber/Lyft/whatever -- and I think it will actually be _good_
for them, because now they'll use some of that warchest to hire the the best
lawyers to figure out exactly how to best navigate the law (in california at
least), and write their contracts in whatever way that best makes sure all 3
are present and they still get a healthy supply of drivers. Other smaller gig
economy companies will then follow that lead so they can stay afloat and not
purchase the legal work done by Uber/Lyft.

If I was invested in Uber/Lyft, I would welcome this, because it removes an
avenue of risk, stabilizing the lawsuit risk.

[EDIT] - In the article there's a link to the decision from which the test
comes from:

[https://www.bloomberglaw.com/public/desktop/document/Hargrov...](https://www.bloomberglaw.com/public/desktop/document/Hargrove_v_Sleepys_LLC_220_NJ_289_106_A3d_449_2015_Court_Opinion?1525151421)

~~~
gnicholas
I think A and B present a difficult challenge for Uber/Lyft. Drivers do not
have the freedom to control how to perform their services. They do have some
leeway in route, but not total leeway. And there are many guidelines they have
to abide regarding the condition of their vehicle and treatment of passengers.

Element B is a little less clear, but I think it would be difficult for
Uber/Lyft to overcome. Drivers would argue that the normal workplace is
actually the streets. Uber/Lyft could of course argue that it's HQ, but given
the number of drives on the street and the number of employees at HQ, this is
no slam-dunk for the companies.

Background: I am a (former) lawyer who worked on employee/contractor issues in
the realm of tax law (which uses different tests than state law).

~~~
rdiddly
Also the drivers aren't supplying a service "outside the business's normal
variety." They're supplying _the_ core Uber service.

EDIT: They might be able to redefine themselves as purely a software company
for the drivers to remain contractors.

~~~
apendleton
Well, I suppose Uber would argue that their service isn't the providing if
rides, but rather, the matchmaking of independent ride providers to
prospective customers, and facilitation of payment. (Not that we should
believe them.)

~~~
fauigerzigerk
That would be difficult to reconcile with a self-driving car project (unless
they didn't own or operate those cars themselves).

~~~
exelius
I think a distributed ownership model is actually the most likely model for
self-driving cars given the capital investment required.

------
laveur
Am I the only person that feels that places like Uber/Lyft/Etc are fighting
the wrong battle? I think their money would be better spent instead fighting
for a new classification of labor. One that defines exactly what a Gig (Hate
that term) worker is and how the industry operates. Its clear to me that tons
of people want a job like Uber offers. I think its time we make a law that
represents that. Instead they waste their time fighting in courts to keep them
as a contract employee, which according to the law is not what they are. But I
feel they are also not a regular employee. I think adding a new classification
for them is win win for both sides. It gives both sides rights under the law.

~~~
smsm42
The problem is that people want the easy access of Uber (taking the term
generically) jobs but when they get it, they also want the security and
paternalistic perks of standard employment jobs. Of course, this can not exist
together - the whole point of Uber jobs is that they are not standard
employment, that's why they are so easily accessible and so easy to respond to
demand.

It is a fundamental contradiction - the perks of standard employment is
exactly what makes it more expensive and less dynamic. You can not solve this
fundamental tradeoff by introducing some new classification - whatever
classification you choose, you'd have to place it somewhere on the spectrum
between complete isolation (like ads board having nothing to do with
advertised businesses) and complete integration (like full-time union
employee).

Whenever you place it, it would be a tradeoff between the interest of the
employer, the employee and the consumer. In ideal unicorn-rainbow world, the
optimal points would be decided by a free market. In real world the fixed
points would probably be negotiated by courts, lawmakers, unions and brazen
new companies like Uber finding new optimum spots on the spectrum not
explicitly prohibited by the regulators. Of course, the regulators can
prohibit those spots then, and that's what is smart for Uber to fight -
without it, they're back to existing spots and then what's the point in them
being there?

~~~
tzakrajs
Perhaps the government could pay for unemployment insurance or benefits when
there is reduced work for gig employees. The government can fill in the gaps
to make sure business have access to a stable pool of gig workers with the
ability to retool for different gigs.

~~~
smsm42
There's a stable pool of gig workers right now, which success of Uber and
alike demonstrates very vividly. So the availability of the workers is not a
problem which needs to be solved.

~~~
tzakrajs
Sorry for being unclear by my use of stable pool. I meant to say that the pool
was stable in the sense that it was healthy and sustainable for people despite
market fluctuations.

------
taurath
It’s interesting how even within companies a hard set social hierarchy has
taken place between employees and contractors. The contractors tend to perform
the exact same duties as employees, but are usually paid less, have worse
future prospects (companies tend to like to hire from full time to full time),
worse benefits and generally don’t get most of the perks of being an employee.

For coders, is this because they’re objectively somehow worse programmers?
Given all the emphasis in hiring on avoiding “bad” hires at all costs, it
seems like there’s a conflict between paying for people who are “worse” than a
FTE but still accepting their contributions. I realize it’s a strategy that
gives the companies more leeway to expand and retract their workforce, but
then stigma that is attached throughout the industry around contract workers
shouldn’t exist, right?

~~~
netheril96
Do companies whose primary employees are programmers also employ contractual
programmers? According to my observation, computer technology companies may
have contractual workers, but only for other roles.

~~~
ereyes01
From personal experience (and admittedly stale by some 8 years), IBM had lots
of contractors doing software development alongside full-timers. It was a
pretty insecure position to be in because they would take the brunt of
layoffs, and many I knew were gone by the time I left, with a couple of
exceptions. Many were ex-employess who had been previously let go or were
retired. Some were not, and all were basically indistinguishable from regular
developers... they just happened to fill a req that merely funded a contractor
instead of a full-time employee, depending on how the money was handed out to
departments.

------
jMyles
Ouch. Some of my favorite gigs I've ever performed aren't possible under this
standard. I question whether this will actually benefit contractors, but I
have no doubt that it will benefit bigger, established players who already
have full-time cadres.

~~~
forapurpose
> Some of my favorite gigs I've ever performed aren't possible under this
> standard.

Let's not assume that because the cost to the employer goes up, they will drop
all the former 'contractor' positions. Employee rates are based on what the
market will bear, subject to law and regulation; they are not based on 'cost-
minus' \- cost to the employer, minus a profit. Using a very simple case of
the cost and benefit: If the employer can hire you for $10/hr, they will,
regardless of whether they make $20/hr or $200/hr from your labor; if the law
increases your rate to $15, they still will employ you. Of course, if they
only make $9/hr from your labor, they won't hire you at $10/hr in this simple
theoretical case. Reality is more complex: They may be happy to absorb the
loss for other reasons, such as completing a major project, pleasing an
important client, acquiring or maintaining market share, developing talent,
your compromising photos of the boss, etc.

It's similar to the mistake people make about pricing: They assume goods are
priced at 'cost plus' \- the seller's cost plus a profit - and that therefore
if the seller's cost increases then the price must also (businesses encourage
this misconception - 'if regulations increase our costs, then everyone will
have to pay more!'). Really goods are priced based on what the market will
bear. That is, goods are priced as high as possible (i.e., at the level which
maximizes profit). If they can charge you $10,000 for an item costing them
$100, they will. If they have to charge $50 for it, they will do that too; $50
is better than nothing. If their costs change, it doesn't change what the
market will bear.

~~~
kbart
For some (non-IT) companies programmers are always a sunk cost, so this math
doesn't work there.

~~~
forapurpose
> sunk cost

I'm not sure what you mean by that. Could you flesh it out? To me a "sunk
cost" is something you've already paid for and can't get back - like your
investment in that boat that sunk to the bottom of the ocean. Hiring is about
future costs, not past ones.

------
danans
There are many types of work outside of Tech and Gig-worker (the two that most
comments here focus on) in which workers are inappropriately classified as
contractors in order to reduce carried risk and cost to the employer, but
where the employer also exerts significant control over the time, place and
manner in which the work is done.

My own familiarity with this (through family who have experienced it) is in
the healthcare field, where new graduates who are hungry for experience have
little leverage vs established employers, and don't push the issue of how they
are incorrectly classified as contractors.

Their only alternative would be to report the misclassification to state
employment authorities, but again, they are often not in a position to make
that worthwhile.

~~~
e40
I was talking with someone recently, and they told me that all new Kaiser
doctors are contractors. I was shocked. I don't know if it is true. If it is,
I hope this decision reverses that trend. Can you imagine coming out of
medical school, passing the boards, doing your time as a slave as some
hospital, to get an offer as a contractor? And all that, with an amazing
amount of debt, that you assumed you could pay off easily, but now you're not
so sure? Wow.

~~~
danans
AFAIK (have a friends who are Kaiser docs), they are employees, and eventually
partners, of the Kaiser Medical Group (a distinct business entity from Kaiser
Permanente the nonprofit health system, that contracts exclusively with it),
which comes with excellent benefits - including large home loans that are
forgiven after several years of service and a generous pension. Perhaps they
contract out some hyperspecialist roles.

But neither of those scenarios is really comparable to the ones low wage
contract workers find themselves in.

~~~
e40
I'm glad to hear that.

------
derekp7
Does this affect "contract to hire" positions, where companies "try before you
buy"? Further, can companies still get contractors through a contractor
agency, assuming the workers are employees of that agency?

~~~
greglindahl
This does sound like it would affect "try before you buy", unless the
contractor has significant other work.

Does anyone actually do "try before you buy" in California? It doesn't work in
a hot job market, and the job market is currently hot.

~~~
scrumbledober
I'm currently working as a contract to hire in SF

~~~
greglindahl
Do you think you know why the position was structured like that? And did you
have other non-contract job offers? Not trying to put you on the spot, just
wondering about the details.

~~~
bluGill
I don't know that I have ever used contract for hire in the definition of
California, but it is the preferred way to do. If I have an opening for direct
hire I get to read some resumes, check your references, have an interview and
hope that tells me how well you will write code. Of course how well somebody
interviews tells me nothing about how they code, and references are chosen and
coached so they are not reliable.

The alternative is hire somebody for a few weeks of contract, and if they are
good give them an offer. Note that I specified two weeks. One of my past
bosses said he knew faster than the new guys co-workers: when he asked the
rest of the team how the new guy was doing, if the guy was good on the 3rd day
you could see the mental shift as the team realized the guy hadn't been on the
team for years (even though he was asking the teammate who had come to ask
when the new guy's computer would arrive). If the guy wasn't good there would
be several weeks of he is "getting up to speed".

------
walshemj
MM I just though isn't this going to kill Hollywood as the entertainment biz
is run off "contractors"

I think A & B would catch most film tv and theater professionals the gaffer
gets told what lighting effect to go for also everyone on a show gets told
when and where to show up on the call sheet.

~~~
justherefortart
IT contractors or contract-to-hire is likely dead as well. And good fucking
riddance.

I contract out work from my company. You know what I don't require? Them to
come and work at my office from "core hours". I don't have a dress code. I
only have specs on what they're creating and the tools, which they provide.

They bill per job and do it at their leisure as well.

Just like when I built homes, my contractors provided everything they needed
and I provided materials. I scheduled them but they showed up whenever it fit
in their schedule based off their other contract jobs.

They're also required to carry their own GL and Worker's Comp if I hire them
or go through their own LLC/Corp.

~~~
walshemj
But if your expecting me to provide kit to your required spec that increases
my day rate :-) though that does help with fending off the tax man.

You confusing say a brickie, sparks or a chippie who can use the same tools
from job to job - with an it job where you might have to buy new software /
hardware.

------
lstroud
Why does a court get to establish a rule like this? Shouldn’t this be a
legislative responsibility?

~~~
PythonicAlpha
Yes, I guess so. Thing is, that legislation is often slow, so courts have to
decide matters.

In Germany also the legislation oftentimes is not competent. Many laws are
made, that are without value, after they where on trial. So, at least in
Germany, courts are oftentimes a second law maker, because they have to check,
how all these rules fit together (in the best of all worlds, the legislation
should do that beforehand).

~~~
jerf
It's worth pointing out there are different legal foundations. The United
States is on something called Common Law [1], in which courts are generally
supposed to follow precedent and not make up new stuff or function as de facto
legislatures. Obviously, this is one of those plans that doesn't necessarily
survive contact with the enemy, but under common law it is reasonable to
criticize the court here as potentially overreaching. A mitigating factor in
that criticism is precisely that many other peer jurisdictions have adopted
the same standard on presumably similar bases of legislation, so there is some
precedent in favor of using this same standard.

Germany is built on a foundation called Civil Law [2]. In this system, judges
are encouraged to uphold principles and rule on the specifics of a case,
regardless of previous cases that may have found in some way or another. Just
as with common law, I'm sure judges may consult precedents as they find
useful, but they aren't bound to them, and are, I presume, much less likely to
mention them in judgments as they are not anywhere near as relevant.

This also applies in a fairly obvious fashion to Hermel's post that is a
sibling to what I'm replying to. In Civil Law, which Switzerland also operates
under [3], instructing judges to imagine reasonable laws is a reasonable thing
to do. In Common Law, judges just imagining laws to be the way they believe
they should be strikes at the foundation of the system.

(Perhaps ironically, it's probably easier for Common Law courts to function as
de facto legislatures precisely because of the respect for precedential law,
despite the fact they are nominally not supposed to. A certain court can make
a decision and apply some test like this, and it tends to spread around the
country unless some legislatures take explicit action to prevent it. It can
even spread between countries, because common law courts can look at other
country's common law courts and consider their precedents as well, though more
weakly than their own. By contrast, while a civil law judge at first seems to
be taking a legislative role when they make some decision based on laws that
essentially only exist in their head, they are binding the future far less and
the decision carries less global weight, making it much harder to truly
"legislate from the bench" in the way we complain about in the US. Second
order effects can be pretty twisted!)

[1]:
[https://en.wikipedia.org/wiki/Common_law](https://en.wikipedia.org/wiki/Common_law)

[2]:
[https://en.wikipedia.org/wiki/Civil_law](https://en.wikipedia.org/wiki/Civil_law)

[3]:
[https://en.wikipedia.org/wiki/Civil_law_(legal_system)#/medi...](https://en.wikipedia.org/wiki/Civil_law_\(legal_system\)#/media/File:Map_of_the_Legal_systems_of_the_world_\(en\).png)

~~~
dragonwriter
> The United States is on something called Common Law [1], in which courts are
> generally supposed to follow precedent and not make up new stuff or function
> as de facto legislatures.

Even while linking to Wikipedia articles, you manage to get the common law /
civil law distinction almost completely backwards: the common law is a body of
judge-made law resulting from judges acting as “de facto legislatures” (which
is the source of the respect for precedent, as the prior decisions are
themselves incorporated into law), whereas civil law is a system in which the
law is strictly created by legislative bodies, and thus courts are expected to
look exclusively to the acts of the legislature, and not prior court
decisions.

------
jdavis703
How does the "B" in ABC affect me as someone who does software engineering
contracting on the side sometimes for tech firms? I've got a decent network
out here in SV, and sometimes a startup facing an urgent deadline will hire me
to do some code writing for a couple of weeks. This is work I do outside of my
normal 9-5. But now it seems I can't do this without being classified as an
employee. That really sucks.

~~~
emaginniss
I think it's about the service that the contracting company does. The idea
being that the company should only contract for things that are different than
what it normally does. IOW, if you have a 100 SW developers in SV that are
employees, you can't also have a bunch of contract SW developers in SV.

------
cft
How will this affect the tax? The main difference between a 1099 contractor
and a W2 employee is in the payroll and social security/medicare tax
requirements. But these tax requirements are federal and this is a CA only
decision.

~~~
greglindahl
Last I worked on a 1099, the total tax amount was roughly the same, the
difference was who paid it.

~~~
SilasX
It doesn’t make a difference if everyone (including the government) agrees on
the classification in advance.

It makes a huge difference if you can retroactively change the terms of the
original agreement (“because I wasn’t classified right”) and get the other
party to have to pay you back for (half of) those taxes.

------
PythonicAlpha
For me it would be interesting to see, if this also sparks remote work for
software development contractors, since of test criteria B.

Else, when a software developer freelancer is working directly in a company
with software developer employees, the criterion will be difficult to fulfill.

In Germany we have a similar situation, because we also have this discussion,
who is an employee (for social security matters). One big criterion is remote
work, but still many employers are holding back, since they fear to loose
control over the contractor, when he can not look over his shoulder.

------
LAMike
What affect will this potentially have on Uber/Lyft?

~~~
bm1362
If this is common in other states I'd assume they've already passed the test
for driver partners?

------
paulsutter
The change seems immaterial to me except that it’s much clearer. The article
author injects a social justice angle without describing any specific impact.

Who is really affected by this? Any concrete examples?

~~~
mabbo
FedEx, UPS, Amazon Logistics, basically every delivery company. Everyone in
delivery these days is an "independent contractor" with no control over their
route or hours, working for a business that does nothing but deliveries.

~~~
PhantomGremlin
_FedEx, UPS, Amazon Logistics, basically every delivery company._

I don't know about the rest of them, but your information is totally wrong
about UPS. The "delivery" people are most definitely employees. Union
employees, Teamsters in fact. Which means that UPS doesn't get to push them
around all that easily. But which also means that the relationship is
occasionally more confrontational than it should be.

[https://teamster.org/divisions/package](https://teamster.org/divisions/package)

~~~
jp10558
Interestingly enough, at least around here, UPS is also the best delivery
company. Decent prices, can get daily pickups, delivers on time, drives a
company truck.

Half the time with FedEx you have no idea why a random truck is stopping to
drop off a package. We also at my office always have to call them to do any
pickup, the UPS guy just grabs outgoing when it delivers the incoming.

~~~
PhantomGremlin
_Half the time with FedEx you have no idea why a random truck is stopping to
drop off a package._

Which "FedEx" do you mean? That's the problem with them, there are multiple
entities sharing the name.

FedEx Ground was an acquisition and re-branding. They operate using
"independent business owners". Want to deliver packages? Buy a route!

[https://en.wikipedia.org/wiki/FedEx_Ground](https://en.wikipedia.org/wiki/FedEx_Ground)

[https://fitsmallbusiness.com/fedex-routes-for-
sale/](https://fitsmallbusiness.com/fedex-routes-for-sale/)

------
rayvd
Should the "employee" also have a say in this?

~~~
e40
That's a good question. I think it is widely assumed that contractors would
prefer to be employees, given the number of court cases where contractors have
sued employers. (I don't remember a court case where an employee sued to be a
contractor.)

I still remember the huge Microsoft settlement[1]. Well, huge for the time.

Employers want to commoditize the jobs they offer. It's in their best interest
to be able to hire/fire with as little risk as possible. The dream for many
companies would be "all employees are contractors" and no one gets benefits.
Except, of course, management. They'll get huge salaries and great benefits.
(I'm an officer of a 35 yr old corp.)

[1] [https://www.nytimes.com/2000/12/13/business/technology-
temp-...](https://www.nytimes.com/2000/12/13/business/technology-temp-workers-
at-microsoft-win-lawsuit.html)

------
tomohawk
ABC has long stood for Anywhere But California

How they expect to stem the flow of businesses moving out of the state while
not honoring simple contracts is beyond me.

~~~
rconti
Can you explain why that's the case, when this is apparently a standard that
_already_ existed in other states, before California (according to the
article)?

Can you explain why California is thriving when people incessantly predict the
imminent collapse due to every employer moving out of state?

------
nebulous1
This seems like a good thing overall

------
hmahncke
This test has been the standard in other states for a while - New Jersey for
example. But I don't think it has been an issue for Uber/Lyft classifying
drivers in NJ as contractors. I wonder why not?

~~~
coryfklein
California has 4x the population of Jersey and is home to the very businesses
that are leading the charge against employee/contractor norms.

~~~
hmahncke
Yes, for sure. I'm just curious why Uber/Lyft haven't been sued already for
their New Jersey operations.

------
SilasX
Sorry, rant coming. (I assure the mods this is impromptu and not copy-pasted;
verify yourself.)

I don't see a lot of productive progress being made on this question. Judges
constantly try to apply conflicting standards of whether someone is "really"
an employee, but you can't make progress on that question until you can
measurably answer _why_ you're asking that question to begin with.

For another context, take "is alcoholism really a disease?" If we don't want
to be stuck in unproductive talking-past-each-other, we have to transform that
into a more concrete query, like, "are alcoholics responsive to social
pressure?" or "does the urge to drink stem from a chemical imbalance?"

Those questions, you can actually -- in principle -- make progress on. Maybe
you find some chemical under which alcoholics stop drinking because it doesn't
appeal to them anymore. Or maybe you find that shunning changes their
behavior, and the appeal to "alcoholism being a disease" maps to a specific
game-theoretic strategy.

Or maybe shunning just turns out to make alcoholics miserable and resort to
more expensive, covert techniques to get their fix. Or maybe the evidence is
perpetually ambiguous. But at least you _can_ make progress on those
questions.

What are the corresponding criteria for the question "is this Uber driver
really an employee?" How would you know you got it wrong? What are you really
optimizing for when you legislate a distinction between contractor and
employee?

For example, let's say you proposed a new test A, under which _every_ purchase
of labor makes someone an employer and employee. You buy a haircut? Great, you
need to send this amount to this fund to pay for their unemployment insurance.
And you need to give them this notice about their rights as a worker. And you
need to pay into this worker's comp fund.

Or let's say you proposed a test B under which the buyer is the _sole_ decider
of how to classify, and _every_ employer/buyer in the world elects to classify
the provider/worker as an employee, and screams in glee as they offload all
the liability and expenses onto the worker. By what standard, concretely, do
you know you erred?

It doesn't work to say "that's absurd". What's important is to say the
_specific desiderata_ that make that situation absurd.

I have yet to see someone propose a (satisfying) standard/desideratum to
ground the employee/contractor distinction in law. The closest I've seen is
"we want to make sure workers don't get oppressed" (or some equivalent
expression), but that doesn't suffice -- there has to be some reason you don't
go with the A test above. _What is that?_

~~~
mark212
Transaction costs for one. It sounds like an incredible mess to actually
implement. And why shift that burden to the customer? In a haircut scenario,
the person getting the cut is unquestionably a customer and not an employer.
So why make him/her shoulder the administrative and legal burden?

Think beyond wage and hour. Customer #2 gets cut by scissors, suffering
serious bodily injury. Who does she sue? The barber, sure. But these actions
were performed during the course and scope of employment. So now (per 400+
years of common law) the employer — aka previous customer - is now on the hook
for those damages.

I’d certainly never get my hair cut there. It might cost me $100,000.

Ok so change that law, but now you’re ditching a few centuries of agency law
and getting exactly what in return? A system no more efficient than what it’s
replacing.

~~~
SilasX
>And why shift that burden to the customer? In a haircut scenario, the person
getting the cut is unquestionably a customer and not an employer

That's exactly the reasoning I said doesn't work. You can't just say that a
situation is "absurd". Why is it absurd? What's the standard so you can derive
the boundaries?

>Customer #2 gets cut by scissors, suffering serious bodily injury. Who does
she sue? The barber, sure. But these actions were performed during the course
and scope of employment. So now (per 400+ years of common law) the employer —
aka previous customer - is now on the hook for those damages.

No, Customer #2 would be a second employer.

>Ok so change that law, but now you’re ditching a few centuries of agency law
and getting exactly what in return? A system no more efficient than what it’s
replacing.

I don't know what that's responding to. I wasn't ditching anything. I was
asking for what grounds the distinction.

------
joshuaheard
Maybe it's time for the legislature to create a new classification of
employee: an independent employee, to conform to the nature of the new gig
economy.

~~~
s73v3r_
What benefits would the employees have under that system? How would they be
better off with that than they are now?

~~~
joshuaheard
I don't know. The purpose of the law is not to confer benefits on one class or
another. It is to accurately describe the rights and duties of relationships.

------
eyeareque
Would this affect companies like Google and others who have
contractors/vendors, but use them as if they were employees?

------
bigcostooge
The rest of the country needs this.

------
Izmaki
As a foreigner I hate when English headlines are semi-cryptic lines of text
that make absolutely no sense to me without a few extra words. They
transform... What?

~~~
dang
I think you need a "the" in there. We'll add one.

------
eli_gottlieb
What a May Day gift!

------
fiatjaf
You know what would be a better test? Check if there is a job contract between
company and person.

~~~
forgottenpass
Check where? Not all contracts are memorialized.

