Rick Nolle: AB5 shows a total lack of understanding
The new California law in place with the passage of Assembly Bill 5 totally misses the true abuse of “contractor” status.
The focus has been on gig economy jobs — lower paying and often minority driven. Gig people are many in number and vocal. They are an easy group for politicians to rally around for re-election points and free publicity. I believe there is extreme differences between employees and gig workers.
Also, the legislation completely misses fixing where the real abuse is taking place. I know there has been abuse of the contractor in the area of high tech — tech support, recruiting, software support, etc. Let’s not forget the medical field where contractor status is applied to ER physicians, anesthesiologists, etc. And, what about the large group of folks who want to maintain contractor status, because they truly are contractors, but are being forced into the employee category? Areas that seem falsely included in the employee category are most realtors, newspaper carriers, freelance journalists, cartoonists, and other more “gig-like” jobs.
WHAT’S THE DIFFERENCE?
Let’s first agree on the differences between an employee and a real contractor.
An employee isn’t described by the hourly wage, but by the commitment to the job. Generally, an employee is someone who considers the position a full time (40 hours per week) or regular part-time (20+ hours per week). The position is often their primary job. They are committed to a regular workday or shift. Employees are expected to be available certain times and schedules not just when they want. For that, they get certain additional things other than wages — benefits, time off, holidays, sick leave or PTO, equity, etc.
A contractor is hired for a specific project(s) with limited duration or clearly defined end results with rates controlled by the contractor. Contractors pay their own taxes, medical expenses, operating expenses, and 401(k). That’s pretty much why carpenters, plumbers, electricians, etc. are referred to as contractors. A contractor can be a specialist in a field who is only needed occasionally and for a specific situation.
Contractors can also be professionals who meet the “limited duration or clearly defined end results” test. There are labor lawyers, inspirational speakers, consultants, trainers, etc. for example. They are providing a specific, unique skill for a specific need for a limited time. Contractor status has the unfortunate potential for abuse of employee rights.
Gig workers are clearly contract employees. Especially the much-shouted Uber and Lyft drivers. Those participating in the “gig economy” are doing so to augment their other sources of income. They work when they want, the hours they want, they can control their wages, they set their schedule, and report only to themselves. Uber and Lyft drivers are contractors and are using the debate to really argue all about wages. The very few that would like a career in Uber or Lyft could have been addressed specifically without this overreaching legislation. Gig workers are not employees.
WHO NEEDS PROTECTION?
Abuse of the contractor status is my main concern. Here are two examples of areas of abuse that should have been addressed, but don’t seem to be understood by legislators. My cynical side says that they don’t want to understand, because the voting bloc isn’t large and vocal enough. Here’s two examples:
Medical professionals: Hospitals use contract physicians to avoid paying costly insurance and avoid significant liability. They don’t have to worry about getting rid of a doctor that might be questioning policy and procedure. They just terminate the contract. They don’t have to worry about processing cumbersome insurance claims or dealing with “in network” and “out of network” conflicts, disputes, and questions. Contractor status benefits only the hospital. The doctor’s employment status is precarious at best. They serve at the whim of the hospital.
The place that hits close to home is my wife’s experience as a high-tech recruiter. Headhunter if you prefer. She has worked in this area in one capacity or another for almost 40 years. She has been an employee less than 20% of the time and a contractor for the rest. She has worked alongside of “employees” doing the exact same job, no differentiation in duties, term, expectations, etc. Surprisingly, she has also managed employees while being classified as a contractor herself. The contractor model in high-tech came into prominence in the mid to late ’80s. A contractor got paid a little higher hourly wage than employees, but they didn’t get benefits, time off, holidays, etc. If you didn’t work, you didn’t get paid.
Two obvious questions:
As a worker why would you want to be a contractor? You did get paid a little more and you had certain tax advantages. However, you also had additional expenses, like your own medical, your own equipment, and your own office space setup. You also missed out on vacation, sick leave, etc. You always served at the caprice of the employer. So, contractor status was only attractive as a short-term situation.
As an employer (especially if you paid them more in wages) why would you want contractors? Not paying benefits (medical, holidays, sick leave, vacation) was a huge savings of a magnitude many people didn’t recognize. Secondarily, there was somewhat of a “try-it-you’ll-like-it” mentality. If you didn’t like them, no problem. All contracts had a virtual instant termination clause. You also had the ability to discriminate based on age, race, religion, or just didn’t like the way somebody dressed. No explanation needed. They just terminated the contract.
MORE CONFUSION THAN SOLUTION
The real benefit to an employer for using contractors was the ability to skirt the laws when you had to do layoffs. Not all that uncommon in high tech. Federal and state laws put heavy burdens (read that as expense) on employers for doing big “reduction in work force” actions. The laws protected employees from the discriminations listed above while contractors were disposable.
The IRS quickly got wise to this and instituted the 18-month rule. If you were a contractor for the same employer for more than 18 months, you had to either be converted to full time employee status or terminated. Companies scammed that by having contractors take a month off and then come back for another 18 months. When the IRS wised up to that, the “RPO” model was born. RPO stands for “Recruitment Process Outsourcing.” Different disciplines had similar models, but they all worked the same. The former contractor would go to work for the RPO and the RPO would contract to provide recruiting services (or whatever) to the company. This skirted the rules while still providing the rules avoidance and complete flexibility to the employer.
AB5 completely misses the mark on truly fixing the inequities between employee status and contractor status. The problem isn’t in the true gig economy positions. The few Uber and Lyft drivers that are “career people” could be addressed with guidelines. The true flaws that need fixed should have been addressed in the legislation. AB5 creates more confusion and calamity than it fixes.
If the legislature wants to fix this problem, it should get a task force of people who really understand the problem and have them draft meaningful guidelines. Guidelines that help the gig economy participants with their wage issues and fixes the real problem of discrimination and abuse of the falsely defined contractors.
Rick Nolle, a Nevada County resident, is a member of The Union Editorial Board. His opinions are his own and do not necessarily reflect those of the board or its members. He can be reached at EditBoard@TheUnion.com.
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