9 ms·

A class-action suit imperils California freelancers

76 points by gok 7y ago

theptip 7y ago
When this ruling came out the naive reading seemed to me to rule out most software engineer consulting/contracting in California. Will be interesting to see how this pans out. (Of course, many "contractors" are actually employees of a contracting company, but much true freelancing seems incompatible with this law).
- Gibbon1 7y ago
  > but much true freelancing seems incompatible with this law. If you're a true freelancer with multiple clients you have generally nothing to worry about. In the past I've had clients where I ended up just working on their stuff and after a few years they ended up just hiring me full time. That is totally normal for non sleazy companies. Then you have companies that try to get out of paying the costs associated with normal employees. These companies are all skeazy and deserve to get slapped.
tomrod 7y ago
Why couldn't this journalist create a small corp.? Hiring magazines would then hire the company, not the person. If I understand there are also tax benefits under the current US tax policy. What am I missing?
- mdorazio 7y ago
  You're missing that they don't want to because it's a pain to setup, requires an extra layer of paperwork, and costs more at tax time (minimum $800 franchise tax). But as far as I can tell that would solve this problem.
  - rubbingalcohol 7y ago
    It does solve the problem, I've done it, but the $800 tax totally killed it in years that I wasn't as active freelancing. California was just a terrible place to do business, and I'm much happier since I moved out of state.
- hirundo 7y ago
  "If a company signs an agreement with an Independent Contractor S corporation to perform contract work, the link between the company and the individual worker is broken. "By default, the way the Independent Contractor S corporation operates, there is no link between the company and the worker. The Independent Contractor S corporation is the employer of the worker. Even if that is an S corporation of one person. As the Independent Contractor S corporation employs the worker, it sets up its payroll which will deal with things like overtime compensation, itemized wage statements, compensation for business expenses, meal breaks and so on. "Again, it is the responsibility of the S corporation that hires the worker to make certain it complies with all applicable wage and hour laws. Labor code violations go out the window because each the Independent Contractor S corporation has its own employee(s). The S corporation has its own payroll from which the worker is paid. The S corporation has its own Worker’s Compensation Insurance Policy. "Clearly, there are some costs associated with contractors converting to S corporations. However, there is also a range of benefits. The savvy business owner currently working directly with 1099 contractors who looks at the A.B.C. test and realizes they are in violation, might incentivize their contractors to convert by sharing in the fees associated with forming an Independent Contractor S corporation. "While some contractors might be set up as LLCs, the majority of contractors start out as sole proprietorships. Simply converting LLCs taxed as proprietorships or partnerships to corporate taxation removes the barriers to employment for the contractor and removes the risk to the hiring company." https://www.incorporationattorney.com/new-independent-contractor-law-california-dynamex-ruling https://www.incorporationattorney.com/new-independent-contra...
hn_throwaway_99 7y ago
I realize I should probably work on this instead of posting to HN, but I see a nice potential startup idea here: A matchmaking service where small groups of freelancers can form their own companies. Instead of being independent contractors, they are employed by their own 3 or 4 member LLC or S-Corp that this service would help set up.
- zrail 7y ago
  Yep. And each one of them can then sign up with a PEO like JustWorks to get Fortune 500 class healthcare and other benefits.
- Gibbon1 7y ago
  Yeah that's my company. And we're all employees with healthcare, retirement accounts, workers comp, unemployment insurance, and FICA withholding.
- cutler 7y ago
  In the UK we have umbrella companies who take care of accounting, payroll etc. for a fee/percentage of income. Don't these exist in the U.S.?
  - Gibbon1 7y ago
    Of course! Nothings free though, they charge corporate consulting rates. There are temp agencies, same deal.
- jaden 7y ago
  There's the Freelancer's Union which offers some group benefits https://www.freelancersunion.org/benefits/ https://www.freelancersunion.org/benefits/
  - zrail 7y ago
    Freelancers Union doesn't offer anything compelling for health insurance, which is the biggest expense for most freelancers and contractors. All they have is an ACA portal.
mdorazio 7y ago
On one hand, I appreciate the spirit of this ruling. It's meant to prevent companies from outsourcing their core business to "freelancers" who are really people who do all the work of normal employees, minus healthcare, retirement, job stability, etc. and force the state to cover these things in part. On the other hand, it's getting increasingly difficult to tell who is freelancing because they prefer that setup and are secure with it vs. who is freelancing because the market for stable, good jobs cratered in their industry.
- randyrand 7y ago
  I’ve long thought the distinction was dumb. Everyone should just be treated as a freelancer. Id rather pay for my own health care thank you very much. There’s practically no advantage to having health care, retirement, etc dictated by your employer and plenty of downsides.
  - marcinzm 7y ago
    >There’s practically no advantage to having health care Only if you're young and healthy and have no pre-existing conditions. Otherwise, enjoy the fun of paying massive premiums for shitty care because you no longer have the group rate from your employer.
    - kgwxd 7y ago
      If those employer group rate things didn't exist, the whole system would be different. The insurance companies would still want peoples money, they'd just come up with some other arbitrary way for people to group up or do away with the grouping all together (which is how it should be).
      - marcinzm 7y ago
        Why would they, if they know someone will cost them a lot of money then what incentive do they have to ever insure them for non-exorbitant amounts if they can avoid it? Every other form of insurance would either not insure them or charge them massive fees (home owners, renters, life, car, etc.). Group rates are a hack if anything and insurance companies have no incentive to make less money by having their own version of it. edit: To explain further. Let's say insurance company A has a group plan and B insures people individually. A is then forced to charge half their clients more than B as the average rate is identical. Thus it's in those people's interests to move to company B and pay less. Now those left on A's plan have even more average risk (as all the low risk people have gone to B) and the rate needs to go up. Rinse and repeat until A has no clients or is bankrupt.
cutler 7y ago
In the UK we have IR35 legislation which the government, in its wisdom, is using to cast an ever widening net around the contracting sector. It's become so farcical that a lot of contractors won't touch anything in the public sector while public sector recruiters are bending over backwards to convince contractors that what they're offering is "outside IR35". So the government is effectively trying to find ways round its own stupid legislation. One of the factors which helps mitigate IR35 is a substitution clause, ie. you're replaceable.
gok 7y ago
I'm curious what folks who think that TNC drivers can't possibly be independent contractors think about this.
- Pulcinella 7y ago
  This just further supports that Uber and Lyft drivers are indeed not contractors? For example Uber drivers don’t set their rates, have not negotiated a contract with Uber in any way, are engaged in work that exists only because of Uber, and their driving is basically the entirety of Uber’s business. Compare to a plumber: plumbers and plumbing companies set their own rates, hours, often provide estimates and negotiate a price and contract with the company, don’t engage in work solely setup by the company (e.g. the pipes are already there; company is not in the business of manufacturing broken pipes), and fixing plumbing is not any portion of the vast majority of companies.
  - thrill 7y ago
    However, Uber drivers accept or decline the rate offered to them for each trip.
  - dmode 7y ago
    Uber and Lyft can claim that they only provide an online marketplace where drivers are free to join and leave as they please. In terms of setting their own price, Uber can make pricing an opt in "smart pricing" suggestion and drivers are free to set their own price. And also most drivers offer their services in multiple platforms. In essence, they are eBay
  - deleted 7y ago
    [deleted]
  - gok 7y ago
    The court invented that test to justify their ruling so of course it's highly broad. My question is do you think that's good for freelancers? Or drivers?
RcouF1uZ4gsC 7y ago
I am sure every business that abuses its employees by classifying them as contractors can come up with a few cases where the people state they like being contractors. However, in the United States with its tying of healthcare to employment, unless you are single or have a spouse that has coverage, not being an employee has downsides. I would guess that while some high-profile freelancers might be worse off, a significant number of freelancers would be better off as employees.
Animats 7y ago
The article glosses over what the decision really says.[1] This strict test applies only to "wage orders", which means minimum wage and overtime laws. Anybody who bills at $40 an hour does not hit this problem. It reaches mostly the subminimum wage "gig economy". Uber, Lyft, delivery drivers, and other exploited "freelancers". [1] https://www.laboremploymentlawblog.com/2018/10/articles/independent-contractors/dynamex-abc-test/ https://www.laboremploymentlawblog.com/2018/10/articles/inde...
ilaksh 7y ago
Companies had come to the conclusion that they could just save lots of money by using contractors or freelancers as cheap long term employees since they didn't have to pay benefits. It was obviously wrong, but everyone was doing it, and no one was stopping them, so it became normalized as a business practice. There are some companies like Uber that have their entire business model based on misclassification. The issue of people blacklisting California freelancers though now becomes a real problem for some people. Maybe other states will make similar laws.
- jameslk 7y ago
  > It was obviously wrong It sounds obviously wrong by the way you phrase it, but it's not so black and white. As a freelancer myself of the past 5 years, I prefer the independent life, being able to negotiate things as I'd like, having more varied work and having more freedom to work when and where I like. Perhaps I could make more and have better benefits as a regular employee, but that's not what I want. Maybe you don't understand and so this is "obviously wrong" to you, but not everything can be bucketed into "wrong" and "right" for everyone. This may help some but it will definitely screw over others.
  - jacobolus 7y ago
    The concept of freelancers isn’t the problem. It is entirely legitimate to be a freelancer and entirely legitimate to hire a freelancer. The problem is de-facto employees who are classed as freelancers as a way of avoiding taxes and worker-protection laws.
    - jameslk 7y ago
      Yes, I would be classified as an employee according to this CA precedent for some of the clients I've worked for. I don't want this. > But it’s part B that presents a problem for freelance journalists: someone is an independent contractor only if they perform work “outside the usual course of the hiring entity’s business.” In the archetypal example, a plumber fixing a restaurant toilet clearly qualifies. A freelancer journalist writing a column for a magazine? Not so much. In my case, I've been a contract developer working for agencies before. Sometimes I want work like this.
temp99990 7y ago
My understanding is this is actually what’s exacerbating the “two-class” system at big tech cos like Google where something like half of all workers are contractors. Like it was bad before, but from what I hear it’s even worse now because companies want to make you look as little like an FTE as possible.
carlsborg 7y ago
Silver lining: these laws force freelancers to incorporate and think about building a business around that service. The reporter in that story could easily rebrand as a newswire LLC and get her old customers back.
- Cakez0r 7y ago
  Does Uber not already require drivers to start their own company? I can definitely understand all the outrage if Uber is trying to classify workers as independent contractors and those contractors aren't even registered businesses (and thus effectively being paid money under the table and avoiding taxes).
- jameslk 7y ago
  Convenient for California that those LLCs require an $800 state tax paid each year.

76 points by gok 7y ago

When this ruling came out the naive reading seemed to me to rule out most software engineer consulting/contracting in California. Will be interesting to see how this pans out. (Of course, many "contractors" are actually employees of a contracting company, but much true freelancing seems incompatible with this law).

Gibbon1 7y ago
> but much true freelancing seems incompatible with this law. If you're a true freelancer with multiple clients you have generally nothing to worry about. In the past I've had clients where I ended up just working on their stuff and after a few years they ended up just hiring me full time. That is totally normal for non sleazy companies. Then you have companies that try to get out of paying the costs associated with normal employees. These companies are all skeazy and deserve to get slapped.

tomrod 7y ago

Why couldn't this journalist create a small corp.? Hiring magazines would then hire the company, not the person. If I understand there are also tax benefits under the current US tax policy. What am I missing?

mdorazio 7y ago
You're missing that they don't want to because it's a pain to setup, requires an extra layer of paperwork, and costs more at tax time (minimum $800 franchise tax). But as far as I can tell that would solve this problem.
- rubbingalcohol 7y ago
  It does solve the problem, I've done it, but the $800 tax totally killed it in years that I wasn't as active freelancing. California was just a terrible place to do business, and I'm much happier since I moved out of state.
hirundo 7y ago
"If a company signs an agreement with an Independent Contractor S corporation to perform contract work, the link between the company and the individual worker is broken. "By default, the way the Independent Contractor S corporation operates, there is no link between the company and the worker. The Independent Contractor S corporation is the employer of the worker. Even if that is an S corporation of one person. As the Independent Contractor S corporation employs the worker, it sets up its payroll which will deal with things like overtime compensation, itemized wage statements, compensation for business expenses, meal breaks and so on. "Again, it is the responsibility of the S corporation that hires the worker to make certain it complies with all applicable wage and hour laws. Labor code violations go out the window because each the Independent Contractor S corporation has its own employee(s). The S corporation has its own payroll from which the worker is paid. The S corporation has its own Worker’s Compensation Insurance Policy. "Clearly, there are some costs associated with contractors converting to S corporations. However, there is also a range of benefits. The savvy business owner currently working directly with 1099 contractors who looks at the A.B.C. test and realizes they are in violation, might incentivize their contractors to convert by sharing in the fees associated with forming an Independent Contractor S corporation. "While some contractors might be set up as LLCs, the majority of contractors start out as sole proprietorships. Simply converting LLCs taxed as proprietorships or partnerships to corporate taxation removes the barriers to employment for the contractor and removes the risk to the hiring company." https://www.incorporationattorney.com/new-independent-contractor-law-california-dynamex-ruling https://www.incorporationattorney.com/new-independent-contra...

hn_throwaway_99 7y ago

I realize I should probably work on this instead of posting to HN, but I see a nice potential startup idea here: A matchmaking service where small groups of freelancers can form their own companies. Instead of being independent contractors, they are employed by their own 3 or 4 member LLC or S-Corp that this service would help set up.

zrail 7y ago
Yep. And each one of them can then sign up with a PEO like JustWorks to get Fortune 500 class healthcare and other benefits.
Gibbon1 7y ago
Yeah that's my company. And we're all employees with healthcare, retirement accounts, workers comp, unemployment insurance, and FICA withholding.
cutler 7y ago
In the UK we have umbrella companies who take care of accounting, payroll etc. for a fee/percentage of income. Don't these exist in the U.S.?
- Gibbon1 7y ago
  Of course! Nothings free though, they charge corporate consulting rates. There are temp agencies, same deal.
jaden 7y ago
There's the Freelancer's Union which offers some group benefits https://www.freelancersunion.org/benefits/ https://www.freelancersunion.org/benefits/
- zrail 7y ago
  Freelancers Union doesn't offer anything compelling for health insurance, which is the biggest expense for most freelancers and contractors. All they have is an ACA portal.

mdorazio 7y ago

On one hand, I appreciate the spirit of this ruling. It's meant to prevent companies from outsourcing their core business to "freelancers" who are really people who do all the work of normal employees, minus healthcare, retirement, job stability, etc. and force the state to cover these things in part. On the other hand, it's getting increasingly difficult to tell who is freelancing because they prefer that setup and are secure with it vs. who is freelancing because the market for stable, good jobs cratered in their industry.

randyrand 7y ago
I’ve long thought the distinction was dumb. Everyone should just be treated as a freelancer. Id rather pay for my own health care thank you very much. There’s practically no advantage to having health care, retirement, etc dictated by your employer and plenty of downsides.
- marcinzm 7y ago
  >There’s practically no advantage to having health care Only if you're young and healthy and have no pre-existing conditions. Otherwise, enjoy the fun of paying massive premiums for shitty care because you no longer have the group rate from your employer.
  - kgwxd 7y ago
    If those employer group rate things didn't exist, the whole system would be different. The insurance companies would still want peoples money, they'd just come up with some other arbitrary way for people to group up or do away with the grouping all together (which is how it should be).
    - marcinzm 7y ago
      Why would they, if they know someone will cost them a lot of money then what incentive do they have to ever insure them for non-exorbitant amounts if they can avoid it? Every other form of insurance would either not insure them or charge them massive fees (home owners, renters, life, car, etc.). Group rates are a hack if anything and insurance companies have no incentive to make less money by having their own version of it. edit: To explain further. Let's say insurance company A has a group plan and B insures people individually. A is then forced to charge half their clients more than B as the average rate is identical. Thus it's in those people's interests to move to company B and pay less. Now those left on A's plan have even more average risk (as all the low risk people have gone to B) and the rate needs to go up. Rinse and repeat until A has no clients or is bankrupt.

cutler 7y ago

In the UK we have IR35 legislation which the government, in its wisdom, is using to cast an ever widening net around the contracting sector. It's become so farcical that a lot of contractors won't touch anything in the public sector while public sector recruiters are bending over backwards to convince contractors that what they're offering is "outside IR35". So the government is effectively trying to find ways round its own stupid legislation. One of the factors which helps mitigate IR35 is a substitution clause, ie. you're replaceable.

gok 7y ago

I'm curious what folks who think that TNC drivers can't possibly be independent contractors think about this.

Pulcinella 7y ago
This just further supports that Uber and Lyft drivers are indeed not contractors? For example Uber drivers don’t set their rates, have not negotiated a contract with Uber in any way, are engaged in work that exists only because of Uber, and their driving is basically the entirety of Uber’s business. Compare to a plumber: plumbers and plumbing companies set their own rates, hours, often provide estimates and negotiate a price and contract with the company, don’t engage in work solely setup by the company (e.g. the pipes are already there; company is not in the business of manufacturing broken pipes), and fixing plumbing is not any portion of the vast majority of companies.
- thrill 7y ago
  However, Uber drivers accept or decline the rate offered to them for each trip.
- dmode 7y ago
  Uber and Lyft can claim that they only provide an online marketplace where drivers are free to join and leave as they please. In terms of setting their own price, Uber can make pricing an opt in "smart pricing" suggestion and drivers are free to set their own price. And also most drivers offer their services in multiple platforms. In essence, they are eBay
- deleted 7y ago
  [deleted]
- gok 7y ago
  The court invented that test to justify their ruling so of course it's highly broad. My question is do you think that's good for freelancers? Or drivers?

RcouF1uZ4gsC 7y ago

I am sure every business that abuses its employees by classifying them as contractors can come up with a few cases where the people state they like being contractors. However, in the United States with its tying of healthcare to employment, unless you are single or have a spouse that has coverage, not being an employee has downsides. I would guess that while some high-profile freelancers might be worse off, a significant number of freelancers would be better off as employees.

Animats 7y ago

The article glosses over what the decision really says.[1] This strict test applies only to "wage orders", which means minimum wage and overtime laws. Anybody who bills at $40 an hour does not hit this problem. It reaches mostly the subminimum wage "gig economy". Uber, Lyft, delivery drivers, and other exploited "freelancers". [1] https://www.laboremploymentlawblog.com/2018/10/articles/independent-contractors/dynamex-abc-test/ https://www.laboremploymentlawblog.com/2018/10/articles/inde...

ilaksh 7y ago

Companies had come to the conclusion that they could just save lots of money by using contractors or freelancers as cheap long term employees since they didn't have to pay benefits. It was obviously wrong, but everyone was doing it, and no one was stopping them, so it became normalized as a business practice. There are some companies like Uber that have their entire business model based on misclassification. The issue of people blacklisting California freelancers though now becomes a real problem for some people. Maybe other states will make similar laws.

jameslk 7y ago
> It was obviously wrong It sounds obviously wrong by the way you phrase it, but it's not so black and white. As a freelancer myself of the past 5 years, I prefer the independent life, being able to negotiate things as I'd like, having more varied work and having more freedom to work when and where I like. Perhaps I could make more and have better benefits as a regular employee, but that's not what I want. Maybe you don't understand and so this is "obviously wrong" to you, but not everything can be bucketed into "wrong" and "right" for everyone. This may help some but it will definitely screw over others.
- jacobolus 7y ago
  The concept of freelancers isn’t the problem. It is entirely legitimate to be a freelancer and entirely legitimate to hire a freelancer. The problem is de-facto employees who are classed as freelancers as a way of avoiding taxes and worker-protection laws.
  - jameslk 7y ago
    Yes, I would be classified as an employee according to this CA precedent for some of the clients I've worked for. I don't want this. > But it’s part B that presents a problem for freelance journalists: someone is an independent contractor only if they perform work “outside the usual course of the hiring entity’s business.” In the archetypal example, a plumber fixing a restaurant toilet clearly qualifies. A freelancer journalist writing a column for a magazine? Not so much. In my case, I've been a contract developer working for agencies before. Sometimes I want work like this.

temp99990 7y ago

My understanding is this is actually what’s exacerbating the “two-class” system at big tech cos like Google where something like half of all workers are contractors. Like it was bad before, but from what I hear it’s even worse now because companies want to make you look as little like an FTE as possible.

carlsborg 7y ago

Silver lining: these laws force freelancers to incorporate and think about building a business around that service. The reporter in that story could easily rebrand as a newswire LLC and get her old customers back.

Cakez0r 7y ago
Does Uber not already require drivers to start their own company? I can definitely understand all the outrage if Uber is trying to classify workers as independent contractors and those contractors aren't even registered businesses (and thus effectively being paid money under the table and avoiding taxes).
jameslk 7y ago
Convenient for California that those LLCs require an $800 state tax paid each year.