The PRO Act’s ‘ABC’ Test is a Not a Legitimate Test for Determining Worker Status But is a Blunt Instrument to Deny Individuals their Right to Independent Entrepreneurship
This paper addresses only one aspect of the Protecting the Right to Organize Act of 2021, S. 420 and H.R. 842, (the “PRO Act”), namely, its proposed adoption of an “ABC” test for determining worker status for purposes of the National Labor Relations Act (“NLRA”). The Coalition respectfully urges that an “ABC” test not be adopted for purposes of any federal statute.
An “ABC” test for determining worker status is explicitly designed to deny independent-contractor status to a subset of common-law independent contractors. This is necessarily so, because the “A” factor of the test is a common-law test. It follows that a common-law independent contractor whose relationship with a client fails to satisfy the “B” factor or the “C” factor is deemed an employee of the client – without regard to any other aspect of the relationship.
Any characterization of an “ABC” test as simply a clearer or more objective test for determining worker status is disingenuous. An “ABC” test denies independent-contractor status to a subset of common-law independent contractors, and it does so on a massive scale.
This was quickly recognized in California, after its enactment of AB 5, which adopted an “ABC” test for purposes of most California employment laws, supplanting a common-law test. California independent contractors loudly complained about being denied, against their will, the right to work independently. The California Legislature found itself flooded with requests for special carve-outs from the test.
But instead of admitting its mistake and repealing its “ABC” test, the California Legislature doubled down on its strategy by enacting AB 2257, which retains an “ABC” test but also includes an embarrassingly long list of special carve-outs for nearly 100 specific groups. The California Legislature decided – on an independent-contractor-sector by independent-contractor-sector basis – which specific groups it would grant relief from an “ABC” test, and which it would not. And the process of granting carve-outs for specific independent-contractor-sectors is likely not over yet. The Coalition respectfully submits that this is not something Congress should want to replicate at the federal level.
The fundamental flaw in an “ABC” test is its rigidity. This rigidity is due to its “B” and “C” factors being mandatory factors. By contrast, one of the reasons why the common-law test has withstood the test of time and been so effective in appropriately distinguishing between employees and independent contractors, is that it is guided by the bedrock concept of “right of control” and consists of a flexible multi-factor test that can adapt tothe specific nature of each relationship being examined. To be sure, courts have emphasized that under the common-law test, no one factor is determinative. This multi-factor approach, with no factor being determinative, imbues the test with reliable protection against absurd outcomes.
In addition to this fundamental flaw in an “ABC” test, the two mandatory factors, themselves, are problematic. First, the mandatory “B” factor summarily denies independent-contractor status to any individual engaged by a firm to provide services deemed to be within the “usual course” of the firm’s business – without regard to any other aspect of the relationship. To make matters worse, this factor requires a court to engage in an oftentimes metaphysical, and unpredictable, inquiry to ascertain the specific contours of a firm’s “usual course of business.”
Second, the mandatory “C” factor analysis turns on facts generally unknown to the company that has the burden of demonstrating the factor is satisfied. A client that contracts with an independent contractor seldom has a business need to know the extent to which the individual is “customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed” – and an individual might not want to share this type of information with a potential client. This produces the anomalous effect of a client seldom knowing whether its independent-contractor relationship with an individual will be defensible.
An aspect of the “C” factor that can be vexing to independent entrepreneurs is its requirement that an individual take the same types of prescribed actions to demonstrate an independent business, regardless of type of business the individual operates, i.e., whether it be website developer, computer programmer, freelance writer, insurance agent, mystery shopper, actor, musician, electrician, cabinet maker, truck driver, attorney, or physician. The prescribed actions often create no value to the individual’s business.
Because both the “B” and “C” factors are mandatory, a failure to satisfy either will deny independent-contractor status to an individual – without regard to any other consideration. For an example of how the “B” factor can produce an absurd outcome, consider an individual who is a leading expert in the individual’s field with a substantial income, who operates out of leased office space with several full-time assistants, and performs project-based work for a wide array of different clients. This individual – who unquestionably is self-employed under any reasonable test – would nonetheless be deemed an employee of a client if the individual’s services were deemed to be within the “usual course” of that client’s business. An important question to consider is: precisely what legitimate policy objective is accomplished by this outcome?
Similarly, for an example of how the “C” factor can produce an absurd outcome, consider an individual who is an exceptional writer and works for a newspaper as a senior editor. The individual also travels widely. This individual and the editor of a travel magazine have a common friend who urges the editor to consider engaging the individual to write for the travel magazine about the individual’s travels. The editor contacts the individual and offers to engage the individual to write about the individual’s next trip, in exchange for a fixed sum. The individual does so, the editor publishes the article in the travel magazine and discovers that readers enjoyed it. The editor then engages the individual under a flexible arrangement in which the individual can write about any trip, in exchange for a fixed sum per article. The individual continues to travel widely and writes about some trips and is paid for the articles but does not write about other trips. This individual – who unquestionably would be deemed to be writing the articles as an independent contractor under any reasonable test – would nonetheless be deemed an employee of the travel magazine, because the individual takes no actions to demonstrate being customarily engaged in an independently established business. Once again, an important question to consider is: precisely what legitimate policy objective is accomplished by this outcome?
Finally, while at this time consideration is being given, in the context of the PRO Act, to adopting an “ABC” test solely for purposes of the NLRA, the ramifications of such a change would extend far beyond the NLRA. The reason is that once a common-law independent contractor is deemed an employee of a client for purposes of the NLRA, the individual becomes susceptible to being represented by a union. And once represented by a union, the union would negotiate a collective bargaining agreement with the client.
It is highly likely that a collective bargaining agreement would establish terms and conditions governing the work relationship that would be incompatible with an independent-contractor relationship under any applicable test, including the common-law test. Thus, once a common-law independent contractor is included in a union-negotiated collective bargaining agreement with a client, that individual would likely be deemed an employee of that client for purposes of all applicable laws.
Because of the numerous flaws and defects of an “’ABC” test, the Coalition respectfully urges that such a test not be adopted for purposes of any federal statute.
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