Episode 24: Update on Key Bills Affecting California Employers

Welcome to the Workplace, a podcast by Cal Chamber. I'm Alan Zarenberg, president of the California Chamber of Commerce. With me today is Jennifer Barrera Kal Chambers, executive vice president and head of our policy and advocacy team. Jennifer is on the podcast today to update us on the status of legislation that could have an impact on employers in the coming years. Jennifer and as you know better than me, lawmakers were gone from the Capitol for a month on recess. Now that they're back, what's the status of some of these really significant pieces of legislation? First, let's talk about Dynamex, which was Dynamex was the court case that dealt with status of workers, whether they're employees or independent contractors. And the court case made a presumption that everybody's an employee and that doesn't work for all workers and all employers. So let's talk about that for a minute. What's going on and what can we expect in the final month that the Legislature has in session before they go on recess for the year?

Yeah, thank you and happy to be here to talk about some of the hot items that are going to be happening this next month, Dynamex being one of the biggest ones. There's been a lot of attention around that decision that you mentioned, Dynamex decision and how individuals are classified as employees versus independent contractors. And with the wide reach of how many industries and individuals are impacted by this decision, it's no surprise that it is one of the biggest issues that the Legislature is dealing with at the end of session. The only legislation that is moving on this topic right now is AB5 by Lorena Gonzalez. And AB5 basically codifies the Dynamex decision by including the ABC test in the Labor Code. But then it has a lot of exemptions from the application of that ABC test and reverts those industries back to the Borrello standard, which was the standard that had been in place for over 30 years before the Dynamex decision came out and is much more flexible with regards to who is an individual or who's an independent contractor and who's an employee. So, for example, insurance agents are carved out hairstylists, doctors, lawyers, accountants, direct sellers. There's a list of different professions and industries that are currently carved out under AB5.

So can we just go back a second for everybody's education out there? So the Borrello factors really dealt with a number of factors. Control by the employer over the worker was really the main topic.

Right, right.

But the ABC test included in the Dynamex decision has a different test. And control is no longer the issue, really. It's whether or not you're in the same field as the employer. Is that correct?

Right. There's three factors now that you have to satisfy all three. The A, the B and the C factor. Control is one of those factors. But the B factor is what you just mentioned, which is you cannot be an independent contractor if you're performing work within the usual course of the business.

So that makes it difficult for doctors in rural hospitals and real estate agents who are in the real estate profession. And you can go on and on and on and. And that doesn't work for everybody, does it?

Right, exactly. Which is why you see so many exemptions being added to the AB5 right now, is because it doesn't work for everyone. And I think in this coming month, you'll see more exemptions included in that list for other industries and professions that should not be under the Dynamex decision, the ABC test. And then also you'll see likely a carve out for business to business contracts, which were really never contemplated as being subject to the ABC test.

So we have a chance here. Just as we close on Dynamex, the court had one issue in front of them. They only got briefed on one issue. That was a trucking delivery company well before the iPhone was ever introduced into our economy. And I'll get back to that in a minute. Why that's significant where the employer basically just changed their, quote, status from employee to independent contractor without changing other than their compensation. They had to cover their own costs, didn't really change their functions. So the court was sort of stuck with bad facts, right?

Oh, yeah, totally bad facts. And from my perspective, those facts could have been an employee under the Borrello factors without introducing the ABC test into law.

Okay, so when the court did that, they had that case in front of them, but all the situations you talk about weren't briefed by the court. They never considered them, they never took evidence, never took testimony. This is what the legislature is supposed to do, right?

Yeah, totally. I mean, I think you can see that playing out with AB5. That the court, as you suggested, was limited to the facts that they consider. The legislature is not. They've been taking testimony and hearing information from all these other industries that are impacted and are trying to craft legislation to address that.

Okay, so going back to when I said these facts occurred even before the first iPhone was introduced into our economy. What is the impact of that on certain professions in California?

Now, Yeah, I mean, one of the most talked about industries is the gig economy that's impacted by the Dynamics decision. And as you mentioned, the iPhone is now regularly utilized throughout the economy to get delivery services, transportation services, a whole range of different options available to the consumer that weren't there before. And they are not currently addressed in the AB5 legislation. But there is still discussions going on. We have approximately six weeks left of the legislative session, and it is not out of the realm of possibilities that there may be additional legislation introduced to specifically address the gig economy in relation to the Dynamex decision.

So those. That's one of the issues that's still up in the air. We don't know how it's going to go, but it has a significant impact on our economy these days, on consumers.

On the individuals who perform those services. A huge, huge impact.

Okay, so speaking of impact on consumers, the next issue we should talk about is privacy. And I don't think that's really on everybody's radar screen because there hasn't been a lot of publicity. But there's a law going into effect January 1st that limits the use of data by employers, businesses, and has the ability for consumers to delete information that may even be helpful to them. Is that right?

Yeah, I mean, the law was passed last year in a week in an effort to remove a problematic ballot initiative that was then pending. And so they put together this really comprehensive law on consumer data which is supposed to protect consumers. But given the rush in which it was put together in a week, there are some challenges in there that could potentially harm consumers. And so that was really kind of the effort this year is to go back and fix some of the problems that were created in putting together legislation of that magnitude in a week.

You know, for example, you can't get a FICO score without data. Right. If you know your credit history.

Exactly.

You know, things like that. You know, loyalty programs, they need to know your shopping habits to be able to give you a discount on certain things.

Yes. One of the biggest ones is the loyalty rewards programs that so many consumers utilize. And those programs are based upon personal information that is provided to the company so they can send you specific discounts on the items that you actually use and purchase. And right now, the current law may jeopardize the continuation of those programs.

So you mentioned that the law was passed in five days. Europe took four years to craft the law. So there's gotta be some holes in this law if it was done so quickly.

Definitely.

Okay, so it was anticipated. We would correct those this year, but that's still up in the air, right?

Yeah. So after the law was passed, the business community really came together and tried to narrow down the changes and the fixes that were necessary in order to protect consumers as intended by the bill, and also to allow the businesses to actually implement the law. And there was a list of bills that were doing just that, narrow fixes, narrow pieces of legislation that addressed some of the challenges with the bill. And they all passed out of the assembly but were unfortunately stalled in the Senate in the most recent policy committee just before they went out on summer recess.

So let's just conclude here on this issue, though. But data is used to help consumers quite a bit. You get discounts, you get targeted ads, you get benefits, you get, you know, your life insurance rates, you get your credit score, you get all kinds of things that are based on your habits. And those things are in jeopardy here unless the legislature really deals with this.

Yes. And so again, coming back in the next week, the legislature will be faced with challenges on how they're going to fix the California Consumer Privacy act before, as you mentioned, it goes into effect in January and they have six weeks in which to do that. So again, all the bills that were moving on this issue are essentially dead. There's a few out there, but I wouldn't be surprised again if there's a bill introduced within the six weeks to try and address some of those concerns.

So this is a big issue for businesses and their customers. Right.

And consumers.

Yeah, consumers. So stay tuned on this one because it could have some far reaching impacts and I don't think most people know what's going on. And most businesses I don't think are aware of it either. Right, right. This even extends down to small businesses.

Oh, yes, small businesses. It's not based upon the size of your business, it's based upon how much personal data you colle. And there's a lot of small businesses out there who unknowingly collect this personal data and will be impacted by the law even though they have no idea that it's going into effect in January.

Wow. So stay tuned for that one. Okay. There's a bill out there about unemployment insurance used to pay striking workers.

Yes.

Are you kidding me?

No. That bill is still moving and still out there. It says after four weeks of a strike that employees who are on strike can go and collect unemployment benefits from California's UI fund, which would put a huge burden on the fund itself as well as employers who pay into that fund.

Yeah. So the Employer pays into it to pay workers who are voluntarily striking and leaving their company and leaving them at risk for losing business.

Exactly. And that's not the intention. That was never the intention of what the unemployment benefit fund was for. I mean, the unemployment insurance fund was for individuals who basically, through no fault of their own, they don't have a job anymore. And that is not the case when you have employees who are out on strike voluntarily, as you indicated, because they just are out asking for more benefits or higher pay, et cetera, and they've decided to walk away from their job in an effort to leverage that.

It's clearly an incentive to walk away from your job if you're gonna get paid anyhow by the fund that's paid for by your employer.

Yes.

That's when I said it sounds crazy. Okay, so let's just go back a second. After the recession 10 years ago, didn't the unemployment insurance fund go bankrupt?

I think it was estimated at about $10 billion that we owed. The federal government had to come in and help us out, and we had to pay back the federal government 10 billion dol for the loan that they provided because we went bankrupt during the recession.

So who paid for that? Employers. Right.

Employers were taxed. It was a tax that they had to pay in order to pay back the federal government. California employers were taxed.

So the fund is finally barely solved with barely solvent. Barely solvent. So if you put more burdens on the fund, there's a good chance it could be bankrupt again.

Yeah, I mean, you know, there's always this threat of a recession lingering out there. And if you have a recession again at a time when you have this bill in effect, you're now opening up the claimants on the UI fund. And so it's going to impact the eligibility for individuals who truly need the fund as well as the striking employees. And it will definitely put a huge burden on the UI fund.

Wow.

Yeah.

Okay, Final bill let's talk about is arbitration. Many employers take advantage of alternative dispute resolution to be able to stay out of court to make sure that things get done expeditiously. And they put them a lot in a lot of agreements they have. Aren't these also in a lot of collective bargaining agreements? They are by unions.

By unions. They utilize arbitration. Yes.

So what does this bill do on arbitration then? Since it's so widely utilized by many parties here?

It will impact employers directly because it says you cannot have an arbitration agreement that's made as a condition of employment. Basically, you cannot have them agree as a part of being hired that they're going to arbitrate disputes with the employer. And basically it's a prohibition, a ban on that type of arbitration.

So everything would have to go to court.

Everything would have to go to court. Every dispute would have to go to court. It's a huge cost to the employers. Employers don't utilize arbitration because they want to get out of any liability or they want to not resolve a dispute with an employee. They utilize arbitration because they want to get away from the court costs and attorney's fees associated with protracted litigation that can take five to seven years to resolve, whereas arbitration can be resolved in a year or less.

How does that help the aggrieved worker? That if they have a legitimate case with their employer over their employment and they have to go to court, isn't that costly? It takes a long time. They're not going to get a resolution.

Yeah. I mean, first they have to find an attorney who's willing to take their case. And if they are able to find an attorney, then civil litigation can take anywhere from five to seven years to actually have a resolution. And so an employee who is alleging to have lost wages or to have been wrongfully terminated is sitting there for five to seven years to have their dispute resolved, where, again, arbitration can be done as little or as fast as a year.

Okay, so let's, you know, talk about this. Haven't we seen this before? Been there, done that. Didn't Jerry Brown veto this?

Yes, we've seen this at least two times before with regards to employment arbitration agreements and several times and other bans on arbitration. And yes, just last year, Governor Brown vetoed it and said it plainly violates federal law. Because in this issue on this space, there's the Federal Arbitration act that prohibits any state from enacting legislation that limits or prohibits or interferes with the use of arbitration agreements, which AB51 totally does.

And the California courts have already not on this bill, but have ruled on other issues that it's preempted by federal law. Right?

Yeah. I mean, there's been numerous cases over the last decade from the California courts and the United States Supreme Court that have consistently held states cannot operate in this field, basically.

So notwithstanding that, though, we know, as we talked about how long it would take to get a case through court.

Right.

So there's going to be. Until this gets resolved by the courts, there's going to be all this uncertainty for employers.

Right? Right. Whether or not they continue with the agreements. If they do, is it going to be a challenge. Somehow it'll create more litigation and more costs for employers while this law is pending out there.

Wow. Okay. So a lot on the plate for you and everybody who's listening today between now and the middle of September when Legisl slate your leaves. Thanks for joining us at the Workplace. Please comment, share and subscribe to Cow Chambers podcast at cowchamber. Com.