Employee or Not? Business, Freelancers Consider Gig-Work Future
Monday, October 07, 2019
Music instructors at Berkeley’s Freight and Salvage teach instruments from clawhammer banjo to mountain dulcimer, as well as leading bluegrass jams, singing circles and a community chorus. About 1,000 people a year study traditional music at the nonprofit arts organization.
Now the Freight is preparing to reclassify its 30 music teachers as employees rather than independent contractors to comply with California’s new gig-work bill, AB5, which takes effect Jan. 1.
“We decided that it was a better business practice,” said Sharon Dolan, executive director of the Freight. “A shift like this helps you clarify your values. We really, really want to support musicians and teachers.”
California companies large and small are likewise weighing whether they, too, should change their workers’ status in the wake of AB5, which codifies and clarifies a 2018 state Supreme Court decision called Dynamex setting a higher bar for companies to claim that workers are independent contractors.
Some big players — notably ride-hailing companies Uber and Lyft — want to maintain their status quo. They will fight reclassification of their drivers in court and through a 2020 ballot initiative that seeks an alternative plan.
But most enterprises and freelancers lack the resources to do battle. Instead they are scouring the bill’s text, consulting attorneys and examining their business practices.
“We hear from businesses all the time, saying, ‘What are we going to do; what are our options?’” said Todd Lebowitz, a labor attorney representing management at BakerHostetler. “The law does not allow for nuances.”
For instance, he said, a national retailer uses a network of independent contractors to install and assemble its products. “Now they are struggling with how to how to handle that in California,” he said. “There are unintended consequences whatever way they go.” The retailer may stop letting California customers request assembly when they purchase something, he said.
While AB5 sets a stricter test for classification, it does not automatically change anyone’s status. Companies can proactively reclassify workers if they think that would be mandated by the new law.
“Ultimately it’s up to businesses to do the right thing,” said Assemblywoman Lorena Gonzalez, D-San Diego, AB5’s author. “We hope we brought it to the forefront for them.”
Enforcement will come through lawsuits and government actions and won’t happen overnight.
Many individual freelancers wonder if they must become employees of the companies that hire them — and whether that will hurt them. Many say they fear being blackballed by companies that don’t want to deal with the headaches of hiring them as occasional employees or the potential liability of keeping them as freelancers.
Although dozens of occupations won exemption from AB5’s stricter test, many others did not. Here are stories of some businesses and workers, with assessments of their situations.
Gig Bill’s Business Exemptions
Some freelancers who want to stay independent contractors hope there’s a get-out-of-jail-free card in AB5, California’s recently passed gig-work bill.
AB5 offers a business-to-business exemption for sole proprietorships, partnerships, limited liability companies, limited liability partnerships or corporations that provide services to other businesses — if they meet additional conditions, such as being free from the client’s control and working for the client, not its customers.
Other criteria: a written work contract, a business license, a business location and multiple clients. The entity providing services must provide its tools, negotiate rates, set its hours and pick its work location.
“There will be individuals who qualify as small businesses,” said AB5 author Assemblywoman Lorena Gonzales, D-San Diego. “We want to help people who want to engage as a business to do it properly, but we don’t want it to be a loophole.”
A key provision, she said, is that the business must be providing services to a company, not to its clients. That would leave out Uber and Lyft drivers and DoorDash couriers, for instance.
Go-Biz, the California Governor’s Office of Business and Economic Development, could assist freelancers with formalizing their own enterprises, Gonzalez said. She plans to request funds for that by June.
Mom-and-pop dog walkers: Redwood City’s Mikey and Shelly’s Pampered Pets, which does dog walking and pet sitting, grew out of its owners’ love of animals. Shelly St. John, 68, and Mike McPeek, 60, made it a full-time endeavor after he was downsized and she retired. To expand, they hired independent contractors to walk dogs and visit pets in their homes, and also do those tasks themselves. Contractors receive 75% of the payment, the service takes the rest — which comes to about $3,000 a month — in exchange for handling of advertising, website, billing, and scheduling.
They’re concerned that paying workers’ compensation, disability, and Social Security for their contractors would eat up too much money, so they’d either have to raise costs, swallow some losses or move somewhere cheaper.
“We’re a mom-and-pop business on the bubble,” McPeek said. “If we don’t have the $3,000 income from the contracting side of our business, then we’ll have to start making some difficult decisions: Do we want to hit full retirement harder than expected or do we leave the area?”
The couple were hoping that their small-business status might mean they were exempt, but size isn’t a factor in AB5. But Shawn Spalding, a San Diego lawyer who is assistant director of New Media Rights, a nonprofit for creative professionals, said it’s clear that their dog walkers should be employees because they do work central to the pet service’s mission — a crucial part of AB5’s test.
Incorporated freelancers: Working out of his Mill Valley garage, Jason Snell runs a freelance editorial business. He writes for his own website, runs a podcast network, records podcasts for others, and writes for clients, including a weekly column for Macworld. While AB5 offers exemptions for freelance writers and photographers, it says they should be considered employees if they contribute more than 35 submissions a year to a client; his column exceeds that limit.
But Snell hopes that he might meet the standards for a business-to-business exemption. AB5 says that a business entity that provides services to another business may be exempt if it operates free from the client’s control, works for multiple clients, has a written contract and meets some other criteria.
Snell incorporated his endeavor under the name The Incomparable Inc. and is paid as an employee of that business, with Social Security and unemployment taxes withheld. His wife, who does the books part-time, is also its employee.
That setup may qualify for the AB5 business-to-business exemption, Spalding said — but sometimes it may not.
The exemptions says that the business entity must provide services directly to another company, rather than to its customers. Spalding said that podcasting and writing for a publication could be interpreted as serving direct customers, but might not. That underscores the law’s complexity.
Snell said even if he’s exempt, he worries that he could still be penalized.
“I can make the case that the law doesn’t apply to me, but that doesn’t stop the chilling effect of a company not wanting to risk it and just not giving me assignments,” he said.
Interpreters and translators: San Francisco resident Muriel Guillaume-Angle has worked as a freelance simultaneous interpreter for 40 years, translating from English or Spanish into her native French. She studied for years, included a stint at the United Nations. Most of her gigs are for just a handful of days during a conference or a visit by a dignitary.
She fears that being an employee would decimate her business. “I could lose all my jobs,” she said. “Why would the French government make me an employee for five days of work in San Francisco?”
Translators (who work with the written word) and interpreters (who deal with spoken language) “absolutely” could be exempt, Gonzalez said. That’s because the work they do is not central to the mission of the companies hiring them.
“The people who need interpreters are not in the business of interpreting,” she said.
Musicians: The music industry worried that AB5 might mean that every time someone recorded an album or gave a concert — even the proverbial garage band — each backup vocalist, engineer, band member and more would need to be an employee.
Not so, Gonzalez said. The bill exempts fine artists. “A musician is a fine artist,” she said.
Still, she hopes to hammer out specific language about musicians with the recording industry, artists and entertainment unions. Previous negotiations with them didn’t reach consensus.
The Freight’s Dolan was relieved to hear that musicians don’t have to be reclassified. The venue hosts about 330 shows a year; each could have up to a dozen band members.
“We would have had to do about a thousand W-2s and payroll taxes for all those people” if each had to be an employee for a one-night gig, she said. “It would not have been practical. It would have been expensive and time-consuming.”
The Freight, which already has about 50 employees, a dozen of them full time, hasn’t yet figured out the details of turning its instructors, most of whom work just a few hours a week, into employees. Currently instructors keep the lion’s share of students’ fees, with a small percentage going to the organization.
“We’re doing our best to come up with a structure that treats people fairly in which teachers get compensated at least close to what they were making before, and the Freight doesn’t lose a ton of money,” Dolan said.
While the Freight is being proactive, many others are still mulling their options.
“I imagine lots and lots of people are going to just ignore this,” Spalding said. “If they don’t have the funds, sophistication or administrative ability to follow the rules, they’ll just hope for the best and only do business with people who won’t cause problems (by suing over misclassification, for instance). It’s a choose-your-own-adventure thing.”
Category: Business News, Human Resources News