While efforts were cut short, the enforcement actions provided valuable insights to everyone involved.
HAYWARD, Calif. — With the industry bolstered by the recent passage of AB5 that narrows the definition of independent contractors, operators must still follow that law and all relevant state labor regulations.
A meeting of the Greater California Livery Association on Jan. 28 drove those points home as a legal expert in state labor law advised attendees on how to navigate and comply with regulations that can be confusing or elusive, while adopting practices that could prevent the high costs of lawsuits and/or state labor violations.
While the recent passage of AB5 subjects transportation network companies (TNCs) like Uber and Lyft to stricter labor laws, every business in California, including luxury ground transportation operations, must be careful how they use independent contractors, freelancers, and hired suppliers and services, said Joseph Lordan, a partner in the San Francisco office of Lewis Brisbois and head of the Northern California Labor & Employment Practice, who led the session, “Defending Against Wage & Hour Liability.”
AB5 is aimed to prevent $8 billion in lost revenue to the state from employers who misclassify workers and avoid paying the same taxes and benefits employers who properly classify workers do. Although AB5 was designed to simplify state labor law, “it’s done nothing of the sort,” Lordan said. “AB5 has a lot of ambiguities.”
To properly classify a worker as an independent contractor, the employer must not control that contractor by telling them what to do, what to charge, and where to go, Lordan said. AB5 codifies an April 2018 California State Supreme Court decision, Dynamex Operations West Inc. v. Superior Court of Los Angeles, that applies an “ABC test” to determine a worker’s labor status.
AB5 goes beyond Dynamex in that states and cities can sue employers over alleged worker misclassification. It applies to provisions of the labor and unemployment insurance codes as well as to wage orders and violations of the labor code relating to wage orders that are retroactive to existing claims and actions. As of July 1, Dynamex’s ABC test will also apply for purposes of assessing worker’s compensation claims.
“If you are a broker of services, you are more likely not employer,” Lordan said. “However, if you have a platform that performs a service, you are more likely to be an employer.”
Created by Dynamex and codified by AB5, the new “ABC Test” is used to determine whether most workers will qualify as employees or independent contractors.
A: The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contractor for the performance of the work and in fact.
B: The person performs work outside the usual course of the hiring entity’s business.
C: The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Lordan advised operators to be aware of PAGA, the Private Attorney General Act, which is a California statute that enables workers to bring lawsuits against employers for labor violations where employees act as private attorneys general, according to an explanation by the Shouse California Law Group. They can pursue civil penalties as if they were a state agency.
The process and damages for a PAGA claim differ from those of a normal lawsuit; instead of a lawsuit for compensation, it is a type of law enforcement action, the Los Angeles-based law firm explains. PAGA was enacted in 2004 because state agencies were not able to enforce certain California's labor laws. It gives workers the ability to file a lawsuit on the behalf of the Attorney General.
“Doing nothing is very dangerous,” Lordan said. “Many lawyers are filing preemptive lawsuits.” PAGA actions are not the same as a traditional class action but can proceed in tandem on similar, though different, tracks. Moreover, while employee participation in class actions can be waived through valid arbitration agreements, PAGA claims are not subject to the same waivers.
In addition to PAGA, penalties and consequences of misclassification can include back wage and hour claims, worker’s compensation insurance claims, paid sick and paid family leave claims, state penalties, injunctive relief, and direct prosecution by the state Attorney General.
“Do you have an indirect provider you serve? Personal service contracts? Are they in chauffeured transportation? Do they move people?” Lordan asked in suggesting operators should review all of their contracts and partnership arrangements.
As an example, someone who services fleets could be classified as an employee while a plumber who fixes your water system does not, Lordan said.
To minimize the fallout from any suits or claims, Lordan strongly advised companies to get employee practices liability insurance (EPLI) and to consider it a cost of doing business in California. “Every claim by an employee comes with attorney fees, awards, and legal contingency fees,” he said.
In referring work among affiliates or via personal service contracts, operators should play it safe and work with companies that have W-2 employees. “The danger is if that company is just ‘Bob’ as the sole employee, you could have problems,” Lordan said. Even if ‘Bob’ is a single LLC, there is a likelihood for misclassification as an independent contractor, he warned. Such guidelines are designed to prevent TNCs, for example, from claiming they have “two million LLC partners,” instead of independent contractors.
Operators also should not give chauffeurs fractional 1% ownership stakes to circumvent independent contractor status, since the regulatory and legal precedent has maintained higher ownership thresholds, Lordan said.
As if lawsuits and claims weren’t enough, operators also should be on the lookout for audits from the state’s Employment Development Department, which believes it is losing out on unemployment insurance premiums from employers who misclassify workers, he said.
The EDD and the California State Bar provide credible resources on the nuances of labor law and how to comply, Lordan said.
Wage, hour, overtime, and meal break rules provide common pitfalls that can blindside operators. Lordan advised:
“If you are not keeping accurate records of all meal breaks and an employee alleges a lack of compensation or provision, the courts tend to weigh in favor of what the employee is claiming,” Lordan said.
The GCLA enjoyed some of its most successful years on the regulatory front in 2018 and 2019 with the passage of AB5, preserved curbside access for operators at LAX, and a drastic reduction in licensing fees operators pay to the California Public Utilities Commission.
GCLA board director and legislative co-director David Kinney underscored how such victories result from members’ direct involvement in the group’s annual Legislative Day at the Capitol in Sacramento, and support for the lobbying firm that represents the GCLA.
2019 GCLA Legislative Day Highlights
The next GCLA day in Sacramento will be held March 11, where operator-members split up into teams and visit the offices of state Senators and California State Assembly representatives. GCLA lobbyist Gregg Cook, who is based in Sacramento, arranges and schedules the visits.
“This is a great opportunity to see how government works with business and offers you a chance to address complaints and challenges,” Kinney told attendees. “It’s important to be engaged and influence the process.”
On the GCLA agenda this year is persuading the CPUC to spend part of $60 million in an account on more enforcement against illegal operators and administrative services for licensed operators, and lobby against attempts by TNCs to repeal or modify AB5.
Kinney urged members to sign up for the event, calling on the GCLA to triple the usual 30-35 number of people participating. “Legislators and regulators will listen to operators,” he said.
Related Topics: attorneys, California operators, David Kinney, employee vs independent contractor, Greater California Livery Association, Gregg Cook, independent contractor issues, industry politics, labor laws, Legal Issues, legislation, limo associations, lobbying, Mo Garkani, state regulations
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