BILL ANALYSIS Ó
AB 1727
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Date of Hearing: April 20, 2016
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 1727
(Gonzalez) - As Amended April 13, 2016
SUBJECT: Hosting platforms: independent contractors
SUMMARY: Establishes rights for specified independent
contractors to organize and negotiate with "hosting platforms"
regarding specified subjects. Specifically, this bill:
1)Defines a "hosting platform" as a facility for connecting
people or entities seeking to hire people for work with people
seeking to perform that work, using any medium of
facilitation, including, but not limited to, a dispatch
service, an Internet Web site, or other Internet-based site.
This bill specifies that a "hosting platform" does not include
a service provider if that entity provides only listings of
goods or services that are contracted directly between buyers
and sellers without the involvement of the provider and
receives no income related to the price of the transaction.
2)Provides that an independent contractor who is not treated by
a hosting platform as an employee and who does not employ his
or her own employees shall have the right to engage in "group
activity" with respect to one or more hosting platforms.
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3)Defines "group activity" to mean to self-organize, to
negotiate as a group with one or more hosting platforms, or to
engage together in other activities for the purpose of group
negotiations or other mutual aid or protection, which activity
includes, but is not limited, to the following:
a) Communicating with each other and with hosting
platforms, customers, and the public through any medium,
including, but not limited to, social media and other
electronic modes of communication.
b) Withholding or restricting the amount of work done
through a hosting platform at any time and for any
duration.
c) Boycotting or critiquing a hosting platform's business
practices.
d) Reporting to law enforcement authorities or making
public practices of a hosting platform which an independent
contractor reasonably believes violate local, state, or
federal law and adversely affect either workers or clients,
or both.
4)Specifies that work by an independent contractor is "labor"
within the meaning of state antitrust law, and group activity
by independent contractors shall not be subject to any
statutory or common law prohibitions or limitation on
combinations in restraint of trade, as specified.
5)Specifies that group activity is a "labor dispute" within the
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meaning of specified provisions of law related to the issuance
of injunctions during labor disputes.
6)Requires a hosting platform to meet at reasonable times and
negotiate in good faith about "allowed subjects for
negotiation" with any group of 10 independent contractors, as
specified.
7)Defines "allowed subjects for negotiation" to mean:
a) Pricing.
b) Division of revenue.
c) Priority for assignments or listings.
d) Advertising by independent contractors on the hosting
platform.
e) Insurance.
f) Acceptance and termination of independent contractor
participation on the hosting platform.
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g) Acceptance or refusal of services by independent
contractors or customers.
h) Responsibility for nonpayment by customers.
8)Provides that an individual or organization that represents
independent contractors shall not be funded directly or
indirectly by a hosting platform.
9)Provides that participation in the group by independent
contractors shall be evidenced by electronic communication, as
specified.
10)Provides that, at the request of the group, a written
contract entered into after the conclusion of negotiations
shall incorporate any agreement reached in those negotiations.
11)Requires the State Mediation and Conciliation Service (SMCS)
to facilitate the performance of the obligation of the hosting
platform to negotiate, to provide meeting space for
negotiations, and to provide mediation services at the request
of either side, as specified.
12)Requires SMCS to investigate any complaint by a group
claiming a violation of the duty of the hosting platform to
negotiate and, if it finds probable cause, to bring an action
for injunctive and other appropriate equitable relief, as
specified.
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13)Prohibits a person from retaliating against any independent
contractor for exercising any rights established under this
bill or for engaging in specified activity. Any person
terminating or taking adverse action against an independent
contractor within one year of exercising protected activities
shall provide a written statement of the reason for
termination or adverse action, as specified.
14)Provides that an independent contractor or their
representative alleging a violation of this bill may bring an
action in superior court and shall be entitled to all remedies
available under the law or in equity, as specified, and treble
damages for lost income for willful violations.
15)Provides that the exercise of any rights established by this
bill shall not be admissible as evidence that a person is an
independent contractor in any judicial or administrative
proceeding.
16)Provides that nothing in this bill is intended to impact the
determination of whether any worker is an employee or
independent contractor or to impact any pending litigation.
17)Contains a severability clause.
18)Makes related legislative findings and declarations.
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FISCAL EFFECT: Unknown
COMMENTS: This bill addresses a number of issues that have
arisen in recent years, particularly regarding what has
generally come to be termed the "gig economy" or the "on-demand
economy." These terms generally have come to mean an economic
system largely (but not always) characterized by apps on
smartphones that connect consumers to goods or services
instantaneously. Transportation network companies (such as Uber
and Lyft) are some of the more common examples of the "gig
economy," but technology has seen this model proliferate across
industries and economic sectors in recent years.
According to the author, while much attention has been paid to
this growing economic phenomenon, the gig economy serves as just
a partial picture of the overuse of independent contractors in
the workforce. Gig work is nothing new, as many industries have
increasingly relied on independent contractors to cut their
operating costs at the expense of worker protections for
decades. Many Californians rely on work as an independent
contractor as their primary source of income through "gig work."
However, federal labor laws only apply to employees and not
these workers. As such, gig workers and other independent
contractors don't enjoy even the most basic workplace rights,
such as minimum wage, social security, workers compensation,
overtime, or the ability to seek reimbursement for expenses.
The author argues that the current system is not working for
many independent contractors, and this bill presents a potential
policy solution to allow those workers to self-organize for
improvement of their economic condition.
Background on the "Gig Economy"
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A recent paper<1> by the Congressional Research Service
described the "gig economy" as follows:
"The gig economy is the collection of markets that match
providers to consumers on a gig (or job) basis in support of
on-demand commerce. In the basic model, gig workers enter into
formal agreements with on-demand companies (e.g., Uber,
TaskRabbit) to provide services to the company's clients.
Prospective clients request services through an Internet-based
technological platform or smartphone application that allows
them to search for providers or to specify jobs. Providers
(i.e., gig workers) engaged by the on-demand company provide
the requested service and are compensated for the jobs."
How big is the gig economy? Due to its non-traditional nature,
estimating the number of workers currently working in the gig
economy is difficult. As the Congressional Research Service
noted, characterizing the gig economy workforce is challenging
because, to date, no large-scale official data have been
collected. In addition, there remains considerable uncertainty
about how to best measure this segment of the labor force.
Existing survey data from the Bureau of Labor Statistics and the
U.S. Census Bureau may provide some insights, but are imperfect
proxy measures of contemporary gig economy participants<2>.
However, the author notes that a recent poll<3> conducted by
Time Magazine (and partners) found that 44 percent of U.S.
adults have participated in these app-facilitated transactions,
either as a consumer or worker, with about 14.4 million workers
---------------------------
<1> Donovan, Sarah A., et al. "What Does the Gig Economy Mean
for Workers?" Congressional Research Service (February 5,
2016).
<2> Id.
<3> http://time.com/4169532/sharing-economy-poll/
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depending on the on-demand economy as a major source of income.
Concern for Workers and Workers' Rights in the "Gig Economy"
The gig economy can have many benefits for workers. For
example:
"In some respects, these on-demand gigs benefit both workers
and the economy, and help to support job growth and household
incomes in the post-Great Recession labor market recovery.
Such gigs often feature flexible hours, low or no training
costs, and generally few barriers to worker entry. These
features have enabled gig-economy workers, including those
with other jobs, to generate new income or to supplement their
primary incomes during difficult times in a strained job
market. Moreover, customers purchasing such on-demand services
have benefited from the convenience and availability of
services as well as the low cost at which they are often
offered."<4>
However, others have argued that these benefits come at a price
- economic exploitation, vulnerability, and lack of protection
under existing employment and labor laws.
For example, a recent report<5> by that National Employment Law
Project (NELP) stated:
"Most of the on-demand companies call their workers
--------------------------
<4> Dokko, Jane, et al. "Workers and the Online Gig Economy."
The Hamilton Project (December 2015).
<5> Smith, Rebecca and Sarah Leberstein. "Rights on Demand:
Ensuring Workplace Standards and Worker Security In the
On-Demand Economy." National Employment Law Project (September
2015).
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"independent contractors" or "1099 employees," after the IRS
form that businesses give to nonemployees who provide them
with services. Calling workers independent contractors greatly
reduces companies' costs, including the costs associated with
being an employer that apply to more traditional companies in
their sectors. Workers who use the platforms to get work are
led to believe they have no entitlement to social protections
and benefits tied to employment. Instead, they are saddled
with an annual self-employment tax (currently 15.3 percent)
along with their income taxes, and with figuring out complex
self-employment tax deductions and credits. At the same time,
many of these companies take a sizeable commission-up to 20
percent or even 25 percent-from the workers' pay.
Characterizing workers as non-employees has serious negative
consequences for them: non-employees have no statutory right
to minimum wage, overtime pay, compensation for injuries
sustained on the job, unemployment insurance if involuntarily
separated from employment, or protection against
discrimination. They are not covered under their companies'
employee benefits plans and have no federally protected right
to join a union and collectively bargain with the companies
for which they work. While workers can challenge their status,
doing so often entails overcoming the threat of denial of
future work, followed by protracted fact-finding and extensive
litigation costs.
Workers in these companies are performing the core work of
their companies, the very essence of the employment
relationship. Yet, while claiming that workers are independent
entrepreneurs, the companies try to have it both ways. They
often manage the workers as if they were employees,
unilaterally setting rates for services, dictating how the
services are provided, and screening, testing, training,
evaluating, promoting, and disciplining workers based on the
standards the companies set. For example, the home care
company Honor boasts that it uses technology to monitor its
home care aides to ensure that they arrive on time, are not
checking Facebook or making social calls, and even that they
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are walking around and not sitting down when they are supposed
to be cooking a meal. The crowdsource site Clickworker
advertises that it screens, trains, tests, and evaluates its
clickworkers. The transportation company Lyft performs
background and driving tests on its drivers, inspects their
vehicles, instructs them how to greet passengers ("with a big
smile and a fist bump"), establishes their rates, regulates
the number of drivers on the road at any given time, and
retains the right to terminate them "at any time, for any or
no reason, without explanation," according to news reports and
company statements quoted in court documents."
NELP's report concludes that more must be done to protect
workers in the gig economy:
"Wage stagnation and burgeoning income inequality have led
many to compare the current era to the Gilded Age of the late
19th century. Conditions for many workers in the on-demand
economy replicate those of that age as well, before the
enactment of New Deal legislation delivered basic labor
rights, a social insurance safety net, income security, and
the right of workers to organize. Businesses that use the 1099
model threaten to deny these basic worker rights to large
numbers of workers. New technologies should not be allowed to
displace existing protections for the many on-demand workers
who are, in fact and in law, employees. We must ensure that
these workers' rights are recognized and enforced. As new
technologies develop, we must also develop new models of
delivering core labor rights, including the right to take
collective action aimed at expanding those rights and adapting
them to specific industries.<6>"
---------------------------
<6> Id.
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Is the "Gig Economy" New or Just Déjŕ Vu All Over Again<7>?
There has also been significant debate regarding whether the gig
economy is a new phenomenon or simply represents a modern
version of traditional worker exploitation and
misclassification.
The recent NELP report noted:
"Companies in the on-demand economy have convinced many
policymakers and many in the public that their app- or
web-based businesses contribute to the economy by creating
work, spurring economic growth, and addressing unmet public
needs (i.e., by helping would-be entrepreneurs market their
services and underutilized resources to consumers and
businesses).
A deeper examination, however, reveals that while these
companies may have devised nontraditional ways to connect
consumers and businesses to services, many have amassed
often-huge revenues from time-tested and altogether
traditional means: the labor of their workers.
These companies' success may be due in part to their ability
to attract consumers through the ease of their applications.
But it owes just as much to the efficiency with which they
squeeze labor from their workforces, spreading business risks
downward to their workers, without whom they cannot succeed
but to whom they have no commitment or accountability. At
bottom, the companies are not delivering technology to their
customers and clients-they use technology to deliver labor to
them. Core features of the business model of many of these
companies include calling workers "independent contractors,"
breaking jobs into small tasks that create erratic schedules
--------------------------
<7> Apologies to the late Yogi Berra.
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and fluctuating income, and making it difficult for workers to
take collective action<8>."
As NELP notes elsewhere it its report, "[T]hese on-demand
companies are actually performing a labor-brokering function
that is not new but has been around for decades. At its core,
their business is to dispatch workers who provide services to
consumers and businesses."<9>
This sentiment was also echoed in a recent Executive Council
statement issued by the national AFL-CIO:
"In fact, this debate has much in common with the decades-long
debate over employee misclassification. Federal Express, which
violated the law by misclassifying its drivers as independent
contractors, competes with United Parcel Service, a company
that delivers packages with employees represented by a union.
Public policy should not give an advantage to the Fed Ex model
over the UPS model.
Nor should public policy encourage the "1099 model" over the
"W-2 model" in the on-demand economy. Many on-demand companies
treat their workers as W-2 "employees"-Hello Alfred, Munchery,
Managed by Q, Bridj, MyClean and BlueCrew, to name a few.
Other employers have switched some or all of their workers to
"employee" status; for example, Honor, Instacart, Shyp, Eden,
Sprig and Luxe. Every worker who meets the basic definition of
"employee" should enjoy all of an employee's legal rights and
protections.
The reasons why businesses want to shed their responsibilities
as employers are not new or limited to the on-demand economy.
Since the 1980s, Wall Street's pursuit of short-term returns
in the name of "maximizing shareholder value" has pressured
all kinds of businesses to evade their responsibilities as
--------------------------
<8> Id.
<9> Id.
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employers, and shift risk to workers.
Corporations have responded to these pressures by outsourcing
and off-shoring jobs, by switching to workforces composed of
"permatemps" and part-time workers, by using just-in-time
scheduling and adopting the franchising model, and by
misclassifying their employees as independent contractors. The
new platforms that treat workers as independent contractors
are responding to similar demands from venture capital
investors for high returns.
For decades these various forms of precarious work have been
the reality for a significant and growing part of the
workforce, and especially for people of color, immigrants and
women. Often the conditions of work meet the definition of an
"employee," and yet they still lack the bargaining power to
improve pay and working conditions. Employee status by itself
is no guarantee of decent work, but the rights and protections
of employee status long have been the foundation on which we
strengthen our bargaining power.<10>"
As the NELP report argues, the use of independent contractors is
not a "new" or "innovative" approach:
"The 1099 business model is not new. For decades, employers in
many industries, including taxi, agriculture, construction,
janitorial, landscaping, home health care, delivery, and port
truck driving have called their workers "independent
contractors." Nor is unstable work new: companies such as
staffing agencies and users of day labor have long made
workers bid for jobs on a daily basis, work for piece rate, or
contract for short-term jobs. Many on-demand companies are
--------------------------
<10> AFL-CIO Executive Council Statement. "The Policy Choices
We Make Now Will Help Determine the Future of Work." (February
24, 2016).
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using increasingly sophisticated technologies to import these
business models to online platforms, with some even claiming
they are not in the business of providing services at all, but
simply an app for the use of workers with whom they have no
lasting relationship."
Independent Contractor vs. Employee Status Generally
Under California law, employment generally occurs when an
employer engages in the services of an employee for pay. The
Industrial Welfare Commission Wage Orders define an "employer"
as any person who directly or indirectly, or through an agent or
any other person, employs or exercises control over the wages,
hours or working conditions of any person. A common law
employee is an individual who is hired by an employer to perform
services where the employer has the right to exercise control
over the manner and means by which the individual performs his
or her services.
In contrast, California common law generally defines an
independent contractor as any person who renders service for a
specified recompense for a specified result, under the control
of a principal as to the result of his or her work only and not
as to the means by which such result is accomplished.
The party seeking to avoid liability as an employer has the
burden of proving that persons whose services he or she has
retained are independent contractors rather than employees. In
other words, there is a presumption of employment. S.G. Borello
& Sons, Inc. v. Dept. of Industrial Relations, (1989) 48 Cal. 3d
341; Labor Code Section 3357.
In determining whether an individual providing service to
another is an independent contractor or an employee, there is no
single determinative factor. Rather, it is necessary to closely
examine the facts of each service relationship and to then apply
a multi-factor or "economic realities" test. Borello at 351.
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An important, but not necessarily determinative, factor involves
the independent contractor's right to control the manner and
means of accomplishing the desired result. Other factors
considered in this determination, as set forth by the Borello
court, include the following:
1) Whether the person performing services is engaged in
an occupation or business distinct from that of the
principal;
2) Whether or not the work is part of the regular
business of the principal;
3) Whether the principal or the worker supplies the
instrumentalities, tools, and the place for the person
doing the work;
4) The alleged employee's investment in the equipment or
materials required by the task;
5) The skill required in the particular occupation;
6) The kind of occupation, with reference to whether, in
the locality, the work is usually done under the
direction of the principal or by a specialist without
supervision;
7) The alleged employee's opportunity for profit or loss
depending on his or her managerial skill;
8) The length of time for which the services are to be
performed;
9) The degree of permanence of the working relationship;
10) The method of payment, whether by time or by the job;
11) Whether or not the parties believe they are creating
an employer-employee relationship
These "individual factors cannot be applied mechanically as
separate tests; they are intertwined and their weight depends
often on particular combinations." Id. As discussed above,
although no single factor is decisive, the right to control the
manner and means used is generally the most important factor.
In addition, some administrative agencies have broadened the
test to include other factors.
Brief Background on Employment Misclassification
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Employee misclassification has become a serious problem in the
United States, and particularly in California. When companies
misclassify workers as independent contractors instead of as
employees, these workers do not receive worker protections,
including minimum wages, overtime pay, and health and vacation
benefits, to which they would otherwise be entitled. Standard
employee protections such as anti-discrimination laws and safety
regulations also do not apply to independent contractors.
Additionally, businesses do not deduct taxes, 401(k), Social
Security, or Medicare payments from the paychecks of independent
contractors, which results in a loss of state tax income from
the businesses as well as a potential loss of income from the
individual worker who may not properly report income. Because
employers do not pay unemployment taxes for independent
contractors, workers who are misclassified cannot obtain
unemployment benefits if they lose their jobs.
A number of reports in the last several years have chronicled
the societal consequences of and impacts upon American workers
of misclassification of workers as independent contractors
versus employees. These concerns led to the passage of SB 459
(Corbett) from 2011, which established significant civil
penalties for the intentional misclassification of individuals
as independent contractors rather than employees.
Definition of "Independent Contractor" Under the National Labor
Relations Act
As discussed above, this bill provides that an independent
contractor who is not treated by a hosting platform as an
employee and who does not employ his or her own employees shall
have the right to engage in "group activity" with respect to one
or more hosting platforms. Therefore, it is useful to briefly
consider the statutory treatment and definition of independent
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contractors under the NLRA.
In defining "employees" for purposes of coverage under the NLRA,
the Act specifically excludes "any individual having the status
of an independent contractor" (29 U.S.C. § 152(3)).
In enacting the NLRA, Congress did not define "independent
contractors," but intended that in each case the issue should be
determined by the application of general agency principles.
NLRB v. United Insurance Co. (1968) 385 U.S. 254. The major
principle, regularly enunciated by the National Labor Relations
Board (NLRB) and the courts, is that the appropriate test to
apply in determining whether certain individuals are independent
contractors (and not under the NLRA) or employees (and therefore
under the NLRA) is the common law of agency right-to-control
test. Under this test, an employer-employee relationship exists
when the employer reserves the right to control not only the
ends to be achieved, but also the means used in achieving the
ends. Lake Pilots Assn . , 320 NLRB 168 (1995). On the other
hand, when control is reserved only as to the result sought, an
independent contractor relationship exists. Gold Medal Baking
Co., 199 NLRB 895 (1972).
Antitrust Issues Under Federal Law
In general, the primary purpose of federal and state statutory
antitrust law is to prevent businesses from creating unjust
monopolies or competing unfairly in the marketplace.
However, throughout the nineteenth century, federal and state
antitrust laws were used not only against businesses, but were
aimed at labor unions as well. In 1890, Congress passed the
Sherman Anti-Trust Act, the basic federal antitrust statute,
which declared illegal "every contract, combination?or
conspiracy in restraint of trade." Following its enactment,
many courts used the Sherman Act to hold unions liable for
antitrust violations.
This application of the federal antitrust laws to organized
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labor culminated in the Supreme Court decision in Loewe v.
Lawlor (1908) 208 U.S. 274, the famous "Danbury Hatters" case,
in which the Court upheld the applicability of the Sherman Act
to unions and union activities.
Application of the federal antitrust laws to labor unions in the
"Danbury Hatters" case created widespread resentment and placed
substantial pressure on Congress for a labor exemption to the
Sherman Act. As a result, in 1914 the Clayton Act was passed.
The labor exemption was further articulated with the passage of
the Norris-LaGuardia Act in 1932. Both of these provisions
declare that labor unions are not combinations or conspiracies
in restraint of trade, and specifically exempt certain union
activities such as secondary picketing and group boycotts from
the application of federal antitrust laws.
Antitrust Issues Under State Law
California's general antitrust law, known as the Cartwright Act,
generally prohibits combinations of two or more persons'
capital, skill, or acts to restrict trade or commerce, reduce
the production of merchandise, increase the price of a
commodity, prevent competition, or control or fix at a standard
or figure any commodity. (Business and Professions Code Section
16600, et seq.)
Like its federal counterpart, the Cartwright Act contains a
labor exemption. This exemption is found in Business and
Professions Code Section 16703, which provides: "Within the
meaning of this chapter, labor, whether skilled or unskilled, is
not a commodity." Like its federal Clayton Act counterpart,
Section 16703 was intended to insulate from antitrust liability
concerted activities by workers seeking to improve their working
terms and conditions.
In certain circumstances, case law has extended the labor
exemption under the Cartwright Act to individuals who were not
technically employees. For example, in L.A. Pie Bakers Assn. v.
Bakery Drivers Local No. 276, (1953) 122 Cal. App. 2nd 237., an
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association of bakers sued a union whose members included two
groups of delivery drivers: the bakers' own employees and a
group of independent drivers who bought pies from the bakers and
then resold them to the same types of customers. Refusing to
agree to a contract specifying the independent drivers'
compensation, the bakers argued that the contract was a
price-fixing arrangement, illegal under the Cartwright Act.
However, the court held that it was immaterial to the labor
exemption that the independent drivers were not, strictly
speaking, employees of the bakers. More significant to the
court was that their "economic function" was the same as the
employee drivers, and the compensation proposed for their
services, "in essence, is the equivalent of wages for overall
services in delivering the pies from plaintiffs' plants to the
customers." Id. at 239. The labor exemption under the
Cartwright Act therefore applied to this form of "price fixing"
because it covered wages, or their equivalent, and hence had
"some reasonable relation to working conditions and the right
and purposes of collective bargaining." Id. at 243.
A similar holding was reached in California Dental Association
v. California Dental Hygienists' Association, (1990) 222 Cal.
App. 3d 49, as case alleging that the dental hygienists were
conspiring to fix and inflate compensation paid by dentists.
Interplay Between Federal and State Regulation: The "State
Action" Doctrine
The "state action" doctrine recognizes that the federal
government did not intend to supersede the authority of the
states through antitrust regulation. This theory is based on
the notion that states are sovereign and, as a result, state
action should not be subject to antitrust scrutiny. This
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doctrine was first articulated by the Supreme Court in 1943 in
the case of Parker v. Brown, 317 U.S. 341, in which the Court
declared that the Sherman Act was not intended to apply to the
activities of the States. Under this doctrine, a state acting
within its own domain may structure its economic market as it
sees fit. The state may allow completely unfettered
competition, or substitute a competitive market structure with
regulation.
The state action doctrine provides that a private party is
immune from federal antitrust law if it can show that the state
has displaced competition via regulation. As further
articulated by the Supreme Court, a two-part test is utilized to
show requisite state action. California Retail Liquor Dealers
Association v. Midcal Aluminum, Inc., 445 U.S. 97 (1980).
First, the conduct is exempt if it is undertaken pursuant to a
"clearly articulated" state law that displaces competition with
a regulatory scheme. Second, the conduct is exempt if it is
"actively supervised" by the state. This latter requirement is
generally seen as ensuring that the private parties are acting
to fulfill the state's objectives, rather than for purely
self-motivated purposes. "[T]he analysis asks whether the State
has played a substantial role in determining the specifics of
the economic policy. The question is?whether the
anticompetitive scheme is the State's own." Id. at 105.
Recent City of Seattle Ordinance
Last fall, the City Council of Seattle, Washington considered an
ordinance to provide drivers of taxi, for-hire, and
transportation network companies the opportunity to collectively
negotiate for improved working conditions. The Council
unanimously adopted the ordinance in December 2015.
Under the terms of the ordinance, drivers with city-issued
licenses that have performed a minimum threshold of trips will
be eligible for collective representation. The City of Seattle
will certify organizations as eligible "driver representative
organizations." Upon request, the driver representative
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organization will receive a list of eligible drivers at each
company have 120 days to demonstrate that a majority of drivers
choose to be represented. Once verified, the driver
representation organization will be authorized to engage in
collective bargaining over specified issues on behalf of the
represented drivers.
On March 3, 2016, the U.S. Chamber of Commerce filed a federal
lawsuit challenging the ordinance. The lawsuit raises various
challenges under state law, but the primary basis for the
challenge is violation of the federal Sherman Antitrust Act
(arguing that it would allow for independently contracted
drivers to engage in unlawful price fixing) and the National
Labor Relations Act (arguing that it is preempted by federal
labor law). The complaint specifically notes that the "NLRB has
not definitively resolved the employee status of drivers who
receive ride requests from software applications and, indeed, as
to certain drivers, that issue is currently pending before the
NLRB."
Other Recent Litigation and Administrative Action
The question of whether certain gig economy workers,
particularly drivers for transportation network companies, have
been misclassified as independent contractors has also been the
subject of various administrative claims and lawsuits. These
include the following:
California Labor Commissioner
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In June 2015, the Division of Labor Standards Enforcement issued
a decision holding that an Uber driver was an employee, and
therefore entitled to expense reimbursement under California law
(mileage reimbursement and toll fees) and interest. Berwick v.
Uber Technologies (Case No. 11-46739). The decision stated,
"Defendants hold themselves out as nothing more than a neutral
technological platform, designed simply to enable drivers and
passengers to transact the business of transportation. The
reality, however, is that Defendants are involved in every
aspect of the operation." Uber has appealed the decision.
Uber Class Action Lawsuit
A lawsuit is currently pending in federal court in California
alleging that Uber drivers were misclassified as independent
contractors rather than employees. In September 2015, U.S.
District Judge Edward Chen in San Francisco allowed the lawsuit
to proceed as a class action. However, on April 5, 2016, the
U.S. Court of Appeals for the 9th Circuit said it would allow
Uber to appeal the class certification order. A jury trial had
been selected for June 20, but it is likely that the appeal will
delay trial in the matter.
Lyft Lawsuit and Proposed Settlement
In 2013, a similar lawsuit was filed, alleging that Lyft drivers
in California had similarly been misclassified as independent
contractors rather than employees. The parties had reached a
tentative settlement of approximately $12.5 million. However,
following objections filed by drivers represented by the
Teamsters, U.S. District Judge Vince Chhabria recently ruled
that the agreement was insufficient. The settlement agreement
"does not fall within the range of reasonableness," Chhabria
wrote. The judge asked the attorneys of both parties to come to
a new agreement by May.
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Other Recent Legislative Efforts to Utilize the "State Action"
Doctrine
In prior years, legislative efforts have attempted to utilize
the state action doctrine to allow various individuals to engage
in collective activity.
SB 848 (Dunn) of 2005 attempted to utilize the state action
doctrine to allow port owner-operator truck drivers to organize
for purposes of collective bargaining. This effort followed
years of concern about the misclassification of California's
port truck drivers as independent contractors rather than
employees. SB 848 was vetoed by Governor Schwarzenegger who,
among other things, expressed concern that the bill would
violate federal antitrust law and result in a "litigious
firestorm."
SB 1213 (Dunn) from 2006 was identical to SB 868. SB 1213 was
similarly vetoed by Governor Schwarzenegger.
More recently, the state action doctrine has been proposed as a
mechanism to authorize family child care providers to form, join
and participate in "provider organizations" for purposes of
negotiating with state agencies on specified matters. The most
recent bill to attempt to do so was SB 548 (De Leon) of 2015;
however, the organizing provisions were subsequently amended out
of the bill.
Prior legislative efforts to utilize the state action doctrine
in the context of subsidized child care providers include, but
are not limited to, AB 641 (Rendon) of 2013, AB 101 (John A
Pérez) of 2011, and SB 867 (Cedillo) of 2008. None of these
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bills were enacted into law.
Other Recent Policy Proposals for the "Gig Economy"
As discussed above, there has been significant debate among
academics and worker advocates regarding the best solution to
protecting workers in the gig economy, and a number of policy
suggestions have been proposed. Some of the more notable
include (1) treating these workers as the employees they truly
are and enforcing existing laws against misclassification, (2)
granting these individuals the right to engage in collective
activity, regardless of their employment status (the approach
essentially taken in this bill and the Seattle ordinance
discussed above), (3) creating a new third category of
"dependent contractors" who would receive some, but not all, of
the protections of employee status, and (4) creating a system of
"portable benefits" for gig economy workers and other
independent contractors that would provide some level of safety
net protections and employee benefits that would follow the
individual from job to job<11>.
Key Provisions of this Bill
Definitions and Scope of the Bill
Although much of the debate surrounding the gig economy has
focused on app-based platforms such as transportation network
companies (such as Uber and Lyft), this bill is not limited to
such situations.
---------------------------
<11> See, for example, "Common Ground for Independent Workers:
Principles for Delivering a Stable and Flexible Safety Net for
All Types of Work" at
https://medium.com/the-wtf-economy/common-ground-for-independent-
workers-83f3fbcf548f#.ra9kc85df
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This bill defines a "hosting platform" as a facility for
connecting people or entities seeking to hire people for work
with people seeking to perform that work, using any medium of
facilitation, including, but not limited to, a dispatch service,
an Internet Web site, or other Internet-based site. The bill
specifies that a "hosting platform" does not include a service
provider if that entity provides only listings of goods or
services that are contracted directly between buyers and sellers
without the involvement of the provider and receives no income
related to the price of the transaction.
Group Activity and Obligation to Negotiate
This bill provides that an independent contractor who is not
treated by a hosting platform as an employee and who does not
employ his or her own employees shall have the right to engage
in "group activity" with respect to one or more hosting
platforms. "Group activity" is defined to mean to
self-organize, to negotiate as a group with one or more hosting
platforms, or to engage together in other activities for the
purpose of group negotiations or other mutual aid or protection,
which activity includes, but is not limited, to the following:
Communicating with each other and with hosting
platforms, customers, and the public through any medium,
including, but not limited to, social media and other
electronic modes of communication.
Withholding or restricting the amount of work done
through a hosting platform at any time and for any
duration.
Boycotting or critiquing a hosting platform's business
practices.
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Reporting to law enforcement authorities or making
public practices of a hosting platform which an independent
contractor reasonably believes violate local, state, or
federal law and adversely affect either workers or clients,
or both.
This bill requires a hosting platform to meet at reasonable
times and negotiate in good faith about "allowed subjects for
negotiation" with any group of 10 independent contractors, as
specified. "Allowed subjects for negotiation" is defined to
mean (1) pricing, (2) division of revenue, (3) priority for
assignments or listings, (4) advertising by independent
contractors on the hosting platform, (5) insurance, (6)
acceptance and termination of independent contractor
participation on the hosting platform, (7) acceptance or refusal
of services by independent contractors or customers, and (8)
responsibility for nonpayment by customers.
Process for Evidence of Participation in Group Activity
This bill provides that participation in the group shall be
evidenced by an electronic communication from an independent
contractor using the same address the independent contractor
uses to communicate with the hosting platform, or a physical
document signed by the independent contractor, sent to either
the hosting platform or to one or more other members of the
group accepting participation in the group and agreeing to be
bound contractually by the outcome of any negotiations between
the group and the hosting platform. The bill specifies that an
independent contractor shall not be bound by the outcome of any
negotiations between a group and a hosting platform unless the
independent contractor has given that authorization.
Enforcement
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This bill requires the State Mediation and Conciliation Service
(SMCS) to facilitate the performance of the obligation of the
hosting platform to negotiate, to provide meeting space for
negotiations, and to provide mediation services at the request
of either side, as specified. The bill also requires SMCS to
investigate any complaint by a group claiming a violation of the
duty of the hosting platform to negotiate and, if it finds
probable cause, to bring an action for injunctive and other
appropriate equitable relief, as specified.
This bill prohibits a person from retaliating against any
independent contractor for exercising any rights established
under this bill or for engaging in specified activity. Any
person terminating or taking adverse action against an
independent contractor within one year of exercising protected
activities shall provide a written statement of the reason for
termination or adverse action, as specified.
Finally, this bill provides that an independent contractor or
their representative alleging a violation of this bill may bring
an action in superior court and shall be entitled to all
remedies available under the law or in equity, as specified, and
treble damages for lost income for willful violations.
Disclaimer Language
This bill provides that the exercise of any rights established
by this bill shall not be admissible as evidence that a person
is an independent contractor in any judicial or administrative
proceeding. This bill also provides that nothing in it is
intended to impact the determination of whether any worker is an
employee or independent contractor or to impact any pending
litigation.
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Arguments in Support
The California Teamsters Public Affairs Council (Teamsters)
supports this bill, arguing that a large number of workers are
treated by employers as independent contractors rather than
employees. Often these workers are misclassified because to do
so allows the employer to avoid paying benefits, payroll taxes,
or provide health insurance or workers' compensation coverage
for those workers. In the new so-called "sharing economy,"
where workers are dispatched to perform work through their cell
phones virtually all the companies treat the workers as
independent contractors. The Teamsters state that, while this
bill does not absolve employers who misclassify their workers
from liability, the bill does give workers who are treated as
independent contractors a path to organizing for their mutual
aid and protection.
The Teamsters go on to state that, "We do think there are many
issues that must be dealt with in this bill as it moves through
the legislative process. These include:
The creation of appropriate collective bargaining units
and exclusive representation by labor organizations.
The scope of bargaining.
A prohibition on the establishment of "company unions"
and the execution of "yellow dog contracts," in which
workers, as a condition of employment, are required to sign
an agreement waiving their right to organize.
The proper role of government oversight and binding
arbitration of contractual and other issues."
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The Teamsters conclude, "We look forward to working with the
author to resolve these and other issues as the bill moves
through the Legislature."
Similarly, the UFCW Western States Council supports this bill,
stating, "We recognize that a variety of issues still remain to
addressed and resolved in [this bill] but given your
professional background, intellect and commitment for workers to
have a collective voice in organizing in this new economy
industry?[w]e are confident that your leadership will enlighten
the public policy process as we move forward with this bill."
Arguments in Opposition
Opponents, including the California Chamber of Commerce
(CalChamber) oppose this bill, arguing that it will stifle
innovation, create higher prices and costly litigation for
consumers, jeopardize the use of independent contractors in
almost every industry, and create uncertainty for years in
California until the courts can resolve the legal debate of
whether allowing independent contractors to set prices is lawful
conduct.
First, they argue that this bill applies to all industries, not
just the "gig economy." They note that he definition of
"hosting platform" is any "facility" used to connect people or
entities seeking services or work with those who want to perform
such work, through the use of any medium, including but not
limited to, a dispatch service, website or other internet based
site. The mere incident of a telephone conversation with an
intermediary to connect two people for the purpose of engaging
one another in a contract for services or work would qualify as
a "hosting platform." Accordingly, the scope of this proposal
is broad and its onerous bargaining requirements will
detrimentally impact California's economy.
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Second, CalChamber states that this bill will ultimately harm
consumers through higher prices and litigation. They argue
that, given the broad scope of this proposal, independent
contractors who perform accounting services, home maintenance,
child care, elder care, educational tutoring, professional
consultation, etc., could determine a set price for their
services that could essentially price consumers out of the
market. Moreover, they contend that this bill exposes consumers
of such services to costly and expensive litigation because the
bill language requires a "person" that terminates the services
of an independent contractor who has engaged in any of the
protections of this bill within one year preceding the
termination to provide a detailed statement of the reasons for
the termination. Failure to do so exposes that "person" to
civil litigation with a threat of treble damages. Accordingly,
a consumer who chooses to no longer utilize the services of an
independent contractor because the independent contractor
collectively bargained to set higher prices must provide the
independent contractor with a detailed statement of the reasons
for the termination or face costly litigation for failing to do
so.
Third, opponents argue that this bill discourages innovation and
new work opportunities. They argue that the "gig economy,"
which allows individuals to control their work schedules, such
as days and hours of work, as well as the total number of hours
they work, is a new model that actually benefits the worker.
This bill would destroy this innovation and eliminate the
flexibility and opportunities that workers currently enjoy. By
allowing a minority of workers in the industry to essentially
dictate the prices and contractual terms of engagement, this
bill will force such companies to limit opportunities for
workers.
Finally, opponents argue that this bill is likely unlawful under
the federal Sherman Antitrust Act and will create uncertainty
until struck down by the courts. Specifically they state:
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"Under [this bill], there is no clearly articulated policy as
to the need for independent contractors in almost every
industry to have the ability to collectively bargain. Second,
the state is not "actively engaged" in the mandated
bargaining, as required. In fact, the State Mediation
Conciliation [Service] is only involved when asked to
"facilitate" a hosting platform's obligation to negotiate,
such as providing "meeting space," to mediate a dispute, or to
investigate a claim alleging a violation. Otherwise, there is
no state involvement. Under [this bill], ten independent
contractors can enter into an agreement to set prices with a
hosting platform, and never utilize or seek assistance from
the State at all. As the Supreme Court noted in Parker, a
state cannot receive immunity from the Sherman Act simply by
authorizing private parties to violate the Act through
anticompetitive agreements. Parker, 63 S.Ct. at 314. Rather,
the state must be an active participant. Given that [this
bill] permits private participants to set prices for consumers
without oversight by the State, it is likely a violation of
the Sherman Act.
The San Francisco Taxi Workers Alliance opposes this bill,
arguing that the rights and protections workers would gain under
the bill are far weaker than those afforded to employees under
the law. They are concerned that this bill could undermine
current litigation seeking to confirm the employee status of
certain individuals and adversely affect the rights of others
who work under similar conditions.
This bill is double-referred to the Assembly Judiciary Committee
should it pass this Committee.
REGISTERED SUPPORT / OPPOSITION:
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Support
California Teamsters Public Affairs Council
Richard McCracken (co-sponsor)
Richie Ross (co-sponsor)
UFCW Western States Council
Opposition
American Staffing Association
Brea Chamber of Commerce
California Asian Pacific Chamber of Commerce
California Association for Health Services at Home
California Chamber of Commerce
California League of Food Processors
California Manufacturers and Technology Association
California Newspaper Publishers Association
California Pool and Spa Association
California Professional Association of Specialty Contractors
California Retailers Association
California Trucking Association
Camarillo Chamber of Commerce
Carlsbad Chamber of Commerce
CAWA - Representing the Automotive Parts Industry
El Dorado County Chamber of Commerce
Foreign Trade Association
Harbor Trucking Association
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Internet Association
National Federation of Independent Business
North Orange County Chamber of Commerce
Oxnard Chamber of Commerce
Rancho Cordova Chamber of Commerce
Redondo Beach Chamber of Commerce & Visitor's Bureau
San Francisco Taxi Workers Alliance
San Pedro Chamber of Commerce
Santa Maria Valley Chamber of Commerce Visitor & Convention
Bureau
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
TechNet
The Chamber of the Santa Barbara Region
Wine Institute
Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091