How To Fight California’s New Nanny State Law Banning Freelance Work

How To Fight California’s New Nanny State Law Banning Freelance Work

In essence, California companies can no longer hire independent contractors to perform work within the normal scope of their business. This is devastating to workers who love their freedom.
Laura Baxter
By

I am an employment law attorney. Each day, I help companies navigate the maze of federal, state, and local laws governing the workplace. And there are many, many such laws, covering topics such as minimum wage, overtime, breaks, time off, payroll, how to handle complaints, safety, workers’ compensation, civil rights, health care, medical leave, accommodation, and more.

For each issue, multiple overlapping bureaucracies continually unroll more red tape, while also prosecuting alleged violations. Employers caught in their net face draconian penalties, often for inadvertent or harmless errors.

Our government takes great pride in these “protections” for employees. If you enter a company break room, you will likely find an entire bulletin board, or even wall, papered in posters that explain all the benefits and entitlements of employment regulation. These benefits and entitlements are generally non-waivable—employees must comply, even if they and their employer would prefer a different arrangement.

For example, in many states (like California), the regulations tell you exactly when you must take each meal and rest break, and for how long. The regulations also require most employees to punch a time clock, even if they would rather be paid on salary.

There is one remaining safe haven for employee flexibility and freedom: independent contractor status. Independent contractors are paid by the job, as agreed between company and contractor. Contractors are essentially small business owners, often beginning as a business of one. They own their own tools and are not dependent on a single employer.

They work on the projects they choose, when and where they choose, spending as much or as little time as they choose, and getting paid as they choose—within what the market can bear, of course. Independent contract work is great for anyone who wants flexibility in her job. This includes parents, students, even the disabled.

Don’t be fooled by the promise of protection and security as a W-2 employee. After all, if the costs of employment become prohibitive, companies can simply lay off more workers. The greatest security comes from working for yourself, from owning your own time and labor. Independent contractors are better able to respond to market forces and protect themselves, by marketing additional services and targeting additional clients.

Five years ago, I made the switch from employee to contractor. Although I perform much of the same work, for many of the same clients, the decision was nonetheless life-changing.

I no longer commute 45 minutes twice a day. I no longer have to purchase and wear uncomfortable office attire. Instead, I work from home, on my own terms. My computer sits between two windows, showcasing pastoral views of our rural homestead. I have the flexibility to run errands, visit friends, and do chores during business hours. I can even write articles for The Federalist.

Not surprisingly, government agencies heavily discourage independent contracting. You are not allowed to simply declare yourself to be an independent contractor, based on a mutually decided agreement between worker and employer. Instead, our workplace regulators have devised confusing, multi-factoral tests to determine whether they will allow you to be a contractor. If you fail the test, you are out of luck, and your company will be heavily penalized. For this reason, when clients seek my professional advice on the matter, I generally tell them to avoid hiring independent contractors—which hurts my freedom-loving heart.

Federal and state tax authorities especially hate the independent contractor classification. No one withholds taxes from contractors’ pay. Instead, contractors are responsible for estimating and paying quarterly taxes.

The tax authorities do not want you to have this power. The IRS has multiple tip sheets discussing which workers must be classified as employees, including the consequences of misclassification. The clear intent is to shuttle as many workers as possible into the category of W-2 wage slaves.

And then, there’s California. California recently passed Assembly Bill 5, which severely restricts the number of independent contractors. Under the new law, a worker must be (A) free from the control of the company while performing the work; (B) perform work that is outside the usual course of the company’s business; and (C) be engaged in an independently established business of the same nature as the work performed. This law codifies Dynamex Operations v. Superior Court, a decision by the California Supreme Court in 2018, which first established the new, three-part test for independent contractor status.

AB 5 is devastating. Most government agencies require factor A—some degree of independence—to be classified as an independent contractor. But factor B makes independent contracting unattainable for many gig workers. In essence, California companies can no longer hire independent contractors to perform work within the normal scope of their business.

Uber, Lyft, and DoorDash are already lobbying for an exemption, while contractors in the trucking and entertainment industries also face uncertainty. We can expect the California legislature to respond by picking winners and losers, rather than open doors for flexibility for all workers.

The current war on independent contractors is a war on our freedom. I say it’s time to fight back. Below are a few ideas to get started:

  1. If you are currently an employee, explore your options for going independent. By law, the employer generally bears the risks of misclassification. So if your company supports you in making the switch, just do it!
  2. If you are currently an employer, talk to an employment law attorney about how you can increase your independent contractor workforce. Depending on the state where you operate, and your risk tolerance, this may or may not be possible. Nonetheless, independent contractors are worth considering for the savings and flexibility (i.e., freedom).
  3. If you are a politician, or know a politician, speak up for workplace freedom. Forward this article to your state legislators and members of Congress. Big companies shouldn’t be the only ones lobbying for exceptions to the rules against independent contracting.
  4. If your business comes under attack from a government agency claiming misclassification, push back. Find the best legal help you can afford, and fight as long as you can afford. Realize that you are not alone. Talk to the media, talk to industry groups, talk to politicians who may be able to intervene.
  5. Support businesses that use independent contractors. Use Uber and DoorDash, for sure. But also think about your local handyman, home baker, and teenage landscaper. Encourage hard-working individuals and families on the verge of becoming a small business.

In Federalist No. 46, Madison warned against a “blind and tame submission to the long train of insidious measures” by which government encroaches on our rights. America’s myriad workplace “protections” have become oppressive. Keep the window of freedom propped open. Support the choice to be and hire independent contractors.

Laura practices employment law and teaches political science at her local university. The opinions stated in this article are her own. You can read more of her work at stirfrylaura.wordpress.com.

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