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Sunday, Jul 21, 2024

Commentary Bill threatens employer-contractor relationship

California businesses are once again on the defensive.

Senate Bill 1128, sponsored by state Sen. Sheila Kuehl, D-Los Angeles, has been circulating throughout both Houses and if approved, could create drastic changes in how California businesses operate. In effect, SB-1128 would make it almost impossible for businesses to avoid reclassifying independent contractors as employees.

Businesses have relied on the Employment Development Department to provide guidance in determining independent contractor relationships. Applying the common-law test was always a reliable method of classifying job status. That may change at the end of this year’s legislative session.

A recent California Supreme Court case, S.G. Borello & Sons vs. Department of Industrial Relations, held that the employer , a grower , was responsible for workers’ compensation coverage for the people the company contracted to harvest its crops. This was determined despite a written contract demonstrating an independent contractor relationship, and a body of evidence establishing the harvesters stood to profit from their skills or share in any loss due to work negligence.

As a result, the state Legislature is now considering using the factors in the Borello case as the new barometer for classifying workers, thus displaying again how little they care for California businesses.

Those factors include: the contractor’s opportunity for profit or loss based on their managerial skills; their investment in materials or equipment required to complete a specific task; their employment of helpers; whether the contractor’s services require specific skills; the degree of permanence; and whether services rendered are integral to the principal’s business.

Insurmountable Problems

The Borello case brings insurmountable problems to many businesses. Small businesses are becoming the backbone of California’s business economy. Fortune 500 companies headquartered in Los Angeles, let alone the state, are becoming almost extinct. Yet, we have become shamelessly successful at showing how little we value business’ contribution to our economy. We should not forget that business is about jobs, networking, the retooling and enhancing of skill base, and it is the genesis of competition and growth.

How many businesses hire independent contractors to complete tasks that are not integral to the success of that business, and who will now make that determination? Will employers be able to absorb the added costs of workers’ compensation coverage and payroll taxes for these workers, as well as the collection of their State Disability Insurance and personal income taxes?

Eligibility for other employee benefits offered by the employer will also become an issue. Can employers afford to be at the mercy of an independent contractor? If that person has a bad day, are they now an employee entitled to benefits or able to pursue litigation?

Hurts Independent Contractors

California has 1.5 million registered independent contractor businesses. Of those businesses, 54 percent are minority or women-owned. What happens to those individuals with specialized skills who enjoy the advantages of their 1099 status? This bill will limit their authority to negotiate for work and fees, as well as their involvement in projects and their ability to plan their own activities. I am sure they went into business for themselves for a reason. I wonder if the Legislature is of that same opinion.

SB-1128 was developed to ensure that lower-paid workers are protected and given access to social insurance programs to ease the burden of unemployment and to protect employees from being unjustly classified. Yes, business should embrace the ethical treatment of employees. However, the language in SB-1128 is vague and undermines the traditional entrepreneurial gestalt of our state.

Our business community is struggling. SB-1128 and other legislation create barriers to investment opportunities in this state, decrease job growth, hamper the ability for business flexibility and make California less competitive. It’s time to develop “smart” legislation that encourages the reform of unethical behavior and provides incentives for spirited, but neighborly practices, as well as safeguards for business survival.

Dahlman is president and CEO of the Employers Group.


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