1. 5

This passed and is coming. Potentially affects anyone working as independent contractors for software/IT in California.

  1.  

  2. 15

    I’m having a hard time seeing how it threatens most consultants. It seems like it’s intended to crack down on those “consultants” who solely function as employees of a single company.

    For people who are really doing consulting as a business and want the ability to have more than one client, by my read of the article there’s an easy out: set up an LLC, LLP or S-Corp. That’s cheap and easy and a very good idea (for more than just moving yourself outside the purview of this law) if you’re serious about being in the consulting business.

    Am I missing some way this law threatens people who aren’t just using “independent contractor” as a loop hole to avoid an employment relationship and all the obligations that carries?

    1. 6

      This sounds much like the German law on Scheinselbstständigkeit (“fake independence”), but 2 loopholes closed in. The reason for that law to be passed was that companies happily circumvented all labor laws by putting people on contract: no obligations to pay them holidays, leave, social security, the ability to fire them easily. At the same time, they expected performance of a workforce: be there at 9, sit at your allocated desk, work 40 hours. Many even were confused when such a person suddenly started working for a different client. And that’s just IT. Making every package deliverer a contractor was quite common.

      The “fix” for the first wave of legislation was to encourage people to form a limited company, which lead to the law getting stricter: this does not protect you anymore. There’s other loopholes, like working through a company that is in itself a shell for multiple people. This now requires registration (it’s literally called “employee lending”) - it is (sometimes) checked if your employee is actually under your command as a business owner. (Indications: who do they ask for leave days? You or your client?)

      The huge problem of this is that businesses regularly skirt the rules, which makes the rules become stricter and stricter. Other companies have to shield themselves against being hit by such a restriction - people who end up proving that they are actually employees will be able to sue themselves into your company. And by such encouraging other people employed at the same time to do the same, easily costing you millions in social security (for the last few years).

      We have weird situations like explicit “contractor desks” without markings to make clear that you are definitely not part of the workforce. Other companies have started to create “bridgeheads” where only some people are allowed to give contractors tasks and isolate them.

      It’s an absurd situation, but in a weird way, I can’t hold it against the state: every loophole has been so aggressively used that something had to be done. Now we are now in a situation where the lawyers rule. And lawyers are damn conservative when it’s not clear where the boundary will move next.

      1. 1

        It’s an absurd situation, but in a weird way, I can’t hold it against the state: every loophole has been so aggressively used that something had to be done.

        No, something doesn’t have to be done. But everyone always assumes that, so we get more and more laws which require more enforcement, more inspections, more friction, and less opportunity.

        1. 3

          No, something doesn’t have to be done.

          Let me rephrase this, then.

          If we want labor laws to remain relevant, then something has to be done. If you’re fine with de-facto employees working less than minimum wage with no benefits and no employee protections, then nothing needed done.

          1. 2

            We could either go for a completely different system (with different rules), but boundary skirting situations will always lead to those effects, independent of the boundaries.

        2. 7

          I feel like everybody pushing back against this is shilling for big business.

          1. 4

            My consulting business certainly fits the eight required criteria, including having more than one customer, an LLC, etc.

            However this just adds additional risks that my customers may not want to deal with anymore. For example it may be easier to stop all consulting until things get sorted out.

            1. 6

              I think the original point of the law is to protect Uber drivers and similar gig economy people who are “exploited” by big business.

              Lots of industries got exceptions added to the law so that their contractors wouldn’t be affected like medical doctors and hairdressers.

              No one spoke up for software freelancers, so no exception for them.

              Should be interesting have the unexpected effects work themselves through the system.

              1. 2

                No one spoke up for software freelancers, so no exception for them.

                Not surprising, given our level of organisation/representation structurs.

                1. 2

                  Yeah this law was a bad idea, driven by hate of the Uber/Lyft business model (which I think is in turn driven by an ideological dislike of people having additional transportation options besides public transit). If “lots of industries” gain exceptions to the law because someone thought to lobby for that industry specifically, and other industries are getting screwed by the law because they happened not to have the right connections to get themsleves written an exception (I’ve seen freelance journalists and writers complain about this law in exactly the same terms as this article), then why was it a good idea for Uber/Lyft drivers in the first place?

                2. 4

                  I was not thinking of customers who’d be so irrationally risk-averse that they’d even stop using consultants who were obviously OK.

                  The way I’m reading the news, it’d be a little surprising if there’s even a whiff of enforcement against anyone who’s not using 1099s in a few specific anti-patterns, so I hope your business does not suffer.

                  I don’t expect this to make either of my CA-based customers change their practices at all.

                  1. 3

                    It’s actually not as surprising as you make it seem. Most big companies don’t hire independent contractors directly probably for very similar reasons; the consultant then has to go through one of the approved vendors of the big corp to be hired as a sub-contractor, which often eliminates the main benefits of being an independent contractor in the first place — much higher hourly rate (wouldn’t necessarily be possible anymore if a third party has to get their cut, too, plus all the potential liabilities for the employer to support unemployment benefits), the ability to deduct your own office space and equipment, being able to be hired and fired on a very short notice etc.

                    1. 1

                      Most big companies don’t hire independent contractors directly probably for very similar reasons; the consultant then has to go through one of the approved vendors of the big corp to be hired as a sub-contractor,

                      While I can’t speak to “most”, that does not align with my experience. The ones I’ve dealt with (fortune 50/USG scale) have either been able to contract directly with us or direct a prime to contract with us on their behalf in a way that preserves the benefits you mention.

                      The thing that would surprise me would be if the authorities in CA enforce this new law against anyone who’s not using 1099s in one or more of a few crappy ways. My gut is that any CA corporation who’s hiring subs from a company with any kind of customary structure will be completely outside the scope of what the CA government is going for with this law.

              2. 6

                So, this is interesting and the discussion is too, but if this isn’t off topic for politics I’m not going to take anyone seriously who says that things about diversity and inclusion or whatever are. This is literally an article about a proposed action of the political system of California.

                1. 1

                  Agreed. This is political discussion of a law that affects programming contractors in California as just one of many affected groups of workers.

                  1. 1

                    I think both these and those are highly relevant… maybe they should have tags so they are recognized but can be filtered.

                  2. 3

                    I only read this one article so I am surely missing details, but the test it describes there is the same tests that is and has been the federal rule from the IRS for a long time. you can read a lot about it on the irs website https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

                    Of course, tons of businesses ignore that banking on the fact their “consultants” won’t know their legal rights and fight back, or scare people with the ambiguity of it, but really the terminology described in that California law is nothing new.

                    I certainly applaud California for trying to protect workers, but the similarities to existing federal rules are fairly striking to me, making me wonder if it will really make a difference. Though perhaps the state can allocate some budget to enforcement that the IRS is unable/unwilling to do right now and put some teeth into it that way.

                    1. 2

                      It may sound similar, but it’s surely not the same, specifically, the following item of the three-part criteria is nowhere to be found in the federal version you conveniently link to:

                      Perform work that is outside the hiring company’s usual course of business

                      If you use the logic of the proponents of the law, the above condition would not only prohibit Uber from hiring the drivers, but it’ll likewise prohibit Microsoft from hiring software engineers, too — the federal law doesn’t have such restrictions.

                      Of course, the funny thing is that Uber Technologies Inc. (this has been their official name all along) is actually a technology company, not a taxi business, so they’ll be arguing that they can continue business as usual, as if this bill was never signed into law.


                      Likewise, I believe the following of the 12 conditions for an exemption infringes on my rights to do my business as I please, by infringing on my right to transact with a verbal contract:

                      1. The BSP must have a written contract to work for the contracting company;

                      Does this mean I can no longer sign verbal contracts over emails, and instead must have official written contracts drafted by a licensed attorney? Who knows, but this surely works to increase the cost of doing business in California, as if it wasn’t already higher than in most other states.

                      1. 2

                        the following item of the three-part criteria is nowhere to be found in the federal version you conveniently link to

                        Perform work that is outside the hiring company’s usual course of business

                        It is two clicks away: https://www.irs.gov/businesses/small-businesses-self-employed/type-of-relationship

                        Services Provided as Key Activity of the Business

                        If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.

                        It isn’t identical, but it sure appears to be the same concept.

                        1. 2

                          Of course, the funny thing is that Uber Technologies Inc. (this has been their official name all along) is actually a technology company, not a taxi business

                          While it’s true that Uber claims this, it’s not the case that all jurisdictions just accept that statement at face value. There are places where the “if it quacks like a duck” standard applies, and in those places Uber is, or is under threat of, being classified as the taxi company it very obviously is. This is part of their ongoing fight with London, for example, because regulators over there aren’t consistently buying the “well technically we’re not in that line of business” arguments.

                          And it is obvious that’s the business, by the way, because companies that are genuinely in the business of providing a marketplace for finding and connecting to contractors, and there are plenty of those, are up-front and honest about that in their marketing. Companies that are actually in, say, the taxi business but for tax/legal reasons want to avoid being classified that way advertise like taxi companies and then try to quibble when someone starts treating them as taxi companies.

                      2. 2

                        Interestingly, since the law’s going to affect a lot of San Franciscans and Angelenos, it’s probably worth remembering that you couldn’t independent contract without paying for Business Registration in these cities anyway. It’s a bit of a shakedown and they’re notoriously unforgiving in chasing you so maybe doing the whole S-corp thing and keeping things clear is probably for the best.