Comment from California Chamber of Commerce

The California Chamber of Commerce appreciates the opportunity to comment on proposed rule RIN 1235-
AA34, titled “Independent Contractor Status Under the Fair Labor Standards Act.”

We first want to take this opportunity to thank the Department of Labor (the “Department”) for its efforts to
develop a workable, flexible proposed rule that can be applied to various industries and jobs. Recent
legislation in California has eliminated this flexibility, resulting in what is now a patchwork approach to
determining who is an employee or independent contractor.

Prior to 2018, California and its state agencies had long applied what is known as the Borello test for
determining whether a worker was an independent contractor or employee for labor and employment
purposes. This multi-factor test was set forth in the California Supreme Court’s decision in S.G. Borello &
Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341. Similar to the Department’s proposed rule,
this flexible, multi-factor approach looked primarily at whether the hiring entity had a “right to control” the
manner in which the worker performed the contracted service.

Despite the Borello test being used for nearly three decades in the employment context, the California
Supreme Court in Dynamex Operations W. Inc. v. Superior Court (2018) 4 Cal.5th 903 made a surprising
and unprecedented departure from the Borello test and announced a significant change in the law, adopting
the “ABC” test for determining whether an individual is an employee under the state’s Wage Orders.

Per Dynamex, a worker is presumed to be an employee unless the hiring entity establishes all three of the
following conditions:
(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 contract for the performance of the work and in fact.
(B) The person performs work that is 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.

Because of the rigidity of the ABC test, specifically factors “B” and “C,” many individuals who control their
own schedule, control the projects or tasks that they take on, and control the way in which they perform the
tasks or projects, lost existing contracts and work opportunities after the Dynamex decision was issued.

The reason for this is because, if the worker performs services that are similar to those of the business
entity retaining their services and/or are not in an independent business or trade of the same work being
performed, these workers must now to be classified as employees per the ABC test.

As the Department recognized in the Supplementary Information portion of the proposed rule, the California
Legislature codified the ABC test through the enactment of AB 5 in 2019, which established Labor Code
Section 2750.3. During the 2019 Legislative Session, many industries lobbied to receive an exemption from
AB 5’s mandate. That bill included over 55 exemptions. Some exemptions were job-specific, while other
industries were entirely exempted through the professional services contract exemption or the business-tobusiness exemption. For any exemption established by AB 5, the old Borello standard would apply. Many
industries such as truck drivers, gig workers, or certain freelancers did not get the exemptions they wanted,
resulting in lawsuits and demands for cleanup legislation. The author and Governor Newsom agreed to
continue negotiations over the statutory language in 2020.

During the first few months of the 2020 Legislative Session, more than 30 bills were introduced to add a
myriad of exemptions to the ABC test. The result was the enactment of AB 2257, which added a host of
exemptions and made changes to the already existing exemptions, including those for business-tobusiness relationships, referral agencies, and professional services. As a result of the adoption of AB 2257,
which was signed into law in September, there are now 109 exemptions to the ABC test. Those 109
exemptions do not even address all of the industries that have asked for exemptions and many believe that
the business-to-business exemption is still overly stringent and vague in its application. Despite pleas from
numerous industries, the California Legislature continues to pick and choose which industries must be
subjected to the ABC test and those which can apply the more flexible Borello standard. Even proponents
of the ABC test acknowledge that it will take years to address all concerns. It is evident from what is
happening in California that a strict, one size fits all approach like the ABC test does not work. These
industries do not have years to wait, because they are required to comply with the ABC test right now. We
thank the Department for acknowledging the difficulties that have arisen in California and proposing a more
workable multi-factor test that will provide industries the flexibility required to operate, and truly make the
appropriate legal distinction between those that are independent contractors from those that instead should
be classified as employees.

Comments to Proposed Section 791.100: This section contains a typographical error. The section
numbering should read “795.100” rather than “791.100.”
Comments to Proposed Section 795.105(d)(1)(i): This section describes the first “core factor,” the nature
and degree of the individual’s control over the work. In describing this factor, the proposed text provides
that in evaluating control, the factor’s application should consider whether the individual “exercises
substantial control over key aspects of the performance of the work, such as by setting his or her own
schedule, by selecting his or her projects, and/or through the ability to work for others….” We propose
editing that sentence to include the following additional examples: “exercises substantial control over key
aspects of the performance of the work, such as by setting his or her own schedule, by selecting his or her
projects, by utilizing his or her own tools or materials to perform the work, by performing the work with little
or no supervision, and/or through the ability to work for others….” These examples were cited in the
preamble to the proposed rule but were not included in the draft regulations. They have often been cited by
courts as examples for evaluating whether the right of control exists for purposes of deciding whether an
individual is an individual contractor and would be beneficial to include here to guide analyses done by
employers and courts.

Comments to Proposed Section 795.105(d)(2)(ii): This section describes the second “other factor,” which
is the degree of permanence of the working relationship between the individual and potential employer. The
proposed text provides that the factor weighs in favor of being an independent contractor if the work
relationship is “by design definite in duration or sporadic, which may include regularly occurring fixed
periods of work”. It also provides that the factor weighs in favor of the individual being an employee to the
extent the work is “by design indefinite in duration or continuous.” We are concerned that the use of the
term “continuous” is misleading as many independent contractor relationships with businesses are
continuous. For example, a gig worker is likely to continuously accept assignments from the same
technology platform or a manicurist is likely to rent space continuously at the same salon for purposes of
maintaining a consistent client base. We therefore recommend deleting the words “or continuous” from this

Comments to Proposed Section 795.105(d)(2)(iii): This section describes the fourth “other factor,” which
is whether the work is part of an integrated unit of production. In describing this factor, the proposed
regulation provides that the factor weighs in favor of an independent contractor classification to the extent
the work is segregable from the potential employer’s production process. Although we understand the intent
here is not to evaluate the importance of the potential employee’s work to the business, as written the
proposed factor is likely to be confusing to potential employers without examples. The factor as phrased is
reminiscent of prong B from California’s ABC test: “The person performs work that is outside the usual
course of the hiring entity’s business.” For example, it is difficult to argue that a freelance journalist who
writes articles for newspapers is performing work that is segregable from the newspaper’s business. To
clarify this factor, we request inclusion of several of the examples described in the Supplementary
Information be provided in explaining the Department’s intention in how this factor should be analyzed.

Providing examples of how to apply this factor to jobs that do not fit the traditional “production line” example
will be beneficial guidance for employers and courts.

Thank you for the opportunity to comment on the proposed regulations.

Comment ID: WHD-2020-0007-1602 | 26-Oct-20

Categorized under Flexibility

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