Episode 98: What Prop. 22 Means for Employers

Welcome to the Workplace, a podcast by Cal Chamber. I'm Erica Frank, Executive Vice President and General Counsel at the California Chamber of Commerce. With me on the podcast today is Jennifer Shaw of the Shah Law Group and a frequent guest here on the podcast. Welcome, Jen.

Hi, Erica. Thanks for having me, as always.

Oh, it's my pleasure. So, Jen.

Hi.

Was this the longest election cycle in history or did it just seem that way?

Well, I think actually it probably was the longest election cycle. I asked my mom, do you recall an election where you've had to wait so long to even get results? I mean, obviously we had Bush v. Gore in 2000, but she said no. And I went back and looked at it and it is the longest time we had to wait to even get the results. And you know what's funny? I think a lot of people focus on the presidential election for obvious reasons. But some really interesting things happened in California. Even though we have this very.

High number of people who voted for Joe Biden for President Elect Biden, we had a rejection of a number of propositions that would be considered, and I hate these terms, but would be considered liberal or left leaning. And it's so interesting to, to think about what motivated people and how did people get to the polls. I think this is gonna be an election that the social scientists are gonna be talking about for decades to come.

I agree. It certainly was fascinating and so interesting to see as we get further away and we start to really evaluate the numbers and take a look at what actually transpired not only within California, but nationwide. But focusing back on California, you really did highlight what we wanna talk about today. And those are the initia. There were so many big initiatives or propositions, which is what they're also called. And of course that comes with all of the commercials regarding one side or the other. But one of the ones that I thought would be very good for us to talk about today is Proposition 22. That's the measure voters pass to protect independent work. So very specific to those app based drivers. But I wanted us to talk about it because we know that AB5, which was the law that codified the Dynamics decision turning independent contractor classification upside down. And we've talked about it frequently on the podcast. We now have some changes to AB5, which was AB2257 layered upon it, Prop 22. So Jennifer, what should employers know right now?

Well, here's one of the interesting things. And my daughter Ella was asking me about this because she kept hearing all of these commercials and then we did my sample ballot together. And we talked about all the initiatives and sat down. So when she'd see a sign and even when the election results came out, she's like, mom, did we vote yes on 22? Did we vote no on 22? So we talked a lot about it. And one of the, I think, attractive aspects of Prop 22 is the many of the drivers said, this is what we want. I don't care that I'm not getting benefits, I don't care that I don't get sick leave. I don't care that I'm not paying into Social Security. Because what I want is flexibility and I want to be able to do this the way I want to do it. And I think that's what one. I mean, based on what I've read, that's what really convinced so many of the voters to say, all right, look, we're going to pass this proposition. Now, what employers need to know, and we talk about this a lot, is there's various areas where you get the law, right? You get it from federal laws, you, you get it from state law, you get it from local ordinances, you get it from administrative agencies like the Labor Commissioner, the Department of Fair Employment and Housing, the edd, of course, and the Workers Compensation Appeals Board when it comes to independent contractor. So what we've got now with Prop 22 is a carve out. What it really is is an expansion of AB5 and AB2257, which you mentioned earlier, where all that happened with AB2257, to be honest, is some industries and trade organizations got better lobbying and so they got some more carve outs from what we call the ABC test. Now, why does anybody care if they're subject to the ABC test? Well, for years and years there's been a case called Borrello. It's a California Supreme Court decision from the mid-70s. And basically what Borrello did was say, okay, these are the factors you need to look at if you're going to evaluate whether somebody is an independent contractor. It was a multi factor test and it wasn't enforced all that rigidly. When we came out with the ABC test, there were three factors, A, B and C that really affect whether somebody is an independent contractor. And the essence of the ABC test is that that worker, that contractor needs to be engaged in a fully independent business. They're advertising on the Internet, they've got a business license, they've got other clients, they've got their own insurance, they've got their own employees. It was a very different way of looking at independent contractor status than the multi factor borrello test. So AB5 said, look, we're going to codify the Dynamics decision, California Supreme Court case of a couple of years ago. We're going to say this is what it takes to be a contractor and we're going to allow some exceptions. 2257 gave us more exceptions, more carve outs, and Prop 22 carved out even more people. This entire category of folks who are driving, the Uber drivers, the Lyft drivers, etc. That's the way I look at it. To really simplify the situation, most of you on the podcast are not going to be affected by Prop 22. What is important for you to understand, and I think what is frustrating to many employers and folks who want to be contractors is neither AB5 nor Borello is really about intent. Prop 22 was really about intent. It's about these folks wanting to be contractors. That's not the case for Borrello and it's not the case for AB5 or AB 2257 or the APC test. So what employers need to understand is Prop 22 has done nothing to help you with your independent contractor status unless you're Lyft or Uber. Otherwise, you're going to have to follow the same tests that we've been following, the ABC test or Borrello, depending on what's going to apply to you to determine if someone is a contractor. So I realize it sounds like it really complicated matters, but it's just another carve out.

I think that's a really great way to look at it. And I want to, just before we close, make sure that our listeners keep in mind that even if an industry is carved out of either 85 or 2257, they really need to take a very close look. Contact counsel, because there are requirements within the exceptions. And even if we are, quote, unquote, an exception under the law, then the analysis does shift to Borello, which Jen, you touched upon just a moment ago. Any tips for those listeners who are saying, okay, yeah, I'm an exception. What do I do with Borrello?

Yes, here's three things that I think need to happen. Number one, you've got to have a written agreement. So this is not a handshake situation. So you've got to have a written agreement. And the written agreement you have needs to recognize the elements of the exception to show, why am I under Borrello? The easier test to satisfy, which is not a piece of cake, by the way, but it's easier. Why do I Get to use the Barrello factors. And then that agreement, you want to have it written to be exhibit A to show the independence of the worker or the organization. Right. Sometimes folks forget that even two organizations have to be able to work independently.

To not have that employment issue come up. So that's the first thing. The second thing is that you have to decide how much risk you want to take. One of the things I teach the lawyers in our firm, and I think it's so important, when an employer calls us for advice, we need to give them the right advice, and we need to give them the risks of not complying with that advice. But we should have no ego about whether they follow it. They are running their own business. It is up to them. So as an employer, you've got to decide, hey, you might want to take the risk in this area. It may be something or somebody or an organization that you're not worried about, and you decide to take the risk. That's fine. That's an analysis you need to make, recognizing that there are very significant penalties if that doesn't work out the way you want it to. I mean, one provision of the labor code says $25,000 penalty and up to six months in jail. So we're not talking about small potatoes here. The third thing I think people need to understand, and I think this goes for everything we're talking about with the elections right now. It just is what it is, okay? So you can get all worked up about it and you can get upset about it, and I understand. I'm working very hard on our materials for our legal updates that are coming up. And it's frustrating to me to see how some of the laws are written and how some of the cases have been decided, but it just doesn't give us anything to argue with reality. So, you know, part of it is we just need to realize, all right, it's harder to be an independent contractor right now, regardless of anybody's intent. And you're taking a huge risk if you decide to go that way. Unless you fit very nicely into one of these little exceptions. Prop 22 made that possible for Uber and Lyft. The rest of us are not so lucky.

All right, that's a great place to end things. Thank you, Jennifer, for being on the podcast again. We so appreciate your time and all. Always energy.

Well, thank you for having me. I really do love it, Erica.

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