A new EPI report explores the widespread problem of employer misclassification of workers as independent contractors and analyzes California’s recent law to fight employer misclassification in the context of current policy debates.
Employer misclassification affects millions of workers and costs government agencies billions of dollars each year. Misclassified workers are deprived of rights and protections under federal and state labor and employment laws, including wage and hour protections, anti-discrimination protections, workers’ compensation, unemployment benefits, and the right to organize.
To combat employer misclassification, many states—including California in 2019—have adopted what is known as the ABC test, a strong, protective test for determining employee status. Under the ABC test, workers are only classified as independent contractors where an employer demonstrates that workers a) are free from control and direction by the hiring company; b) perform work outside the usual course of business of the hiring entity; and c) are independently established in that trade, occupation, or business.
As the report explains, up to 1 million California workers stand to directly benefit from the law that established the ABC test, known as Assembly Bill (AB) 5. Unfortunately, due to a corporate-funded ballot initiative, ride-share drivers and delivery drivers who work for app-based companies like Uber, Lyft, and Instacart are now exempted from AB5. The continuing efforts by platform companies and others to avoid the reach of AB5 have put enormous pressure on companies that continue to treat workers as employees.
“The national conversation around employer misclassification of workers lately has focused on platform-based companies like Uber and Lyft, but it’s important to note that employer misclassification hurts millions of workers economywide, including construction workers, janitors, truck drivers, and retail and hospitality workers. Like gig workers, these workers need strong legal protections to ensure they get the rights, benefits, and protections they are due,” said Lynn Rhinehart, co-author of the report and senior fellow at EPI.
The report authors recommend that federal and state policymakers adopt the ABC test in their labor and employment laws to ensure workers are not misclassified and are covered by important workplace rights and protections. This includes passing the federal Protecting the Right to Organize (PRO) Act—which the U.S. House passed earlier this year—to establish the ABC test for purposes of organizing and collective bargaining rights.
“A strong, protective legal test for establishing employee status is critically important to combat employer misclassification of workers,” said Celine McNicholas, co-author of the report and director of government affairs and labor counsel at EPI. “Policymakers must pass the PRO Act to prevent employer misclassification—and accompany it with strong enforcement and full funding of enforcement agencies.”
**On Thursday at 12 p.m. Eastern, EPI will host a webinar on this report and state and federal actions to deter U.S. employers from misclassifying workers, followed by a second event on Tuesday, June 22 centered on the global fight to derail worker misclassification. Register here and here.**