California Supreme Court Ruling Takes Its First Scalp

California Supreme Court Ruling Takes Its First Scalp

It didn’t take long for a California Supreme Court decision to start claiming victims. Bottle & Barlow, a “get loose stay sharp” joint on trendy R Street in Sacramento, where a gentleman can sip whisky and also be stylishly shorn, has lost its entire staff of freelance barbers because seven justices agreed to make it more difficult for businesses to classify workers as independent contractors.

“There’s gonna be a lot of shops that close,” Bottle & Barlow owner Anthony Giannotti told ABC 10. His comment to the Sacramento Bee was “they have really gutted us,” a reference, we assume, to the justices who held his business and others in their hands — and then dropped them.

“You can’t hire and structure things the way (barbershops) have for decades,” he added. “They’ve just destroyed the pay structure for the barber and cosmetology industry.”

And other industries, as well. Shortly after the Supreme Court affirmed a lower court ruling in the Dynamex case on April 30, we warned that the decision could “gig the gig economy” and those who make their living in it. As many as 2 million workers across the state might be affected by the decision.

One of the benefits of being a contract worker is the flexibility it offers. Losing it is why Giannotti’s Bottle & Barlow independent barbers quit. As employees, they lose the autonomy they had when operating as freelancers.

“Something that attracts most of us to this industry is the freedom,” Giannotti told Fox 40 News. “I don’t want to have a boss above me telling me what to do and that’s kinda what the state’s forcing us to do now.”

Giannotti believes his business will survive the losses. While cutting hair alone not long after the barbers left he promised a customer wanting to book an appointment “we’ll be back up and running next week.” But a future of steep costs awaits his business and others. A “conservative” forecast from the R Street Institute says the court’s decision will cost California businesses between $1.3 billion and $6.5 billion in additional payroll expenses each year.

“When a worker is classified as an employee, the employer is saddled with a battery of onerous legislative and regulatory requirements. Additionally, they also face taxes on payroll, Social Security and unemployment insurance, and must make contributions to workers’ compensation insurance. All of these burdens mean that independent contractors cost only 66 cents on the dollar for every hour worked by a full-time employee.”

Businesses will handle the added financial burden by employing fewer workers, growing more slowly (or not at all), passing on the costs to customers, or some combination of those three options.

Gig economy businesses, and those who rely on them for their income, will be especially hurt because their business models are dependent on the freedom to contract with, rather than employ, workers. Innovative companies such as Uber, Lyft, DoorDash, TaskRabbit, and many others are now in a tight spot — one they might not be able to escape. The ruling allows them to continue to contract with independent workers only if the arrangements pass the court’s “ABC test,” which says:

  • (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  • (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
  • (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

According the R Street Institute, the Dynamex ruling was not a needed improvement in labor conditions but “a judicial policy response to a manufactured crisis that does not, as an empirical matter, exist.” So it’s another example of the California Way.

Contract workers and employers urged the Legislature to pass a measure addressing the issue in the final days of the recently completed legislative session, but Assembly Speaker Anthony Rendon said there wasn’t enough time to act before the Aug. 31 deadline.

There was one option, however.  Assemblywoman Melissa Melendez, R-Lake Elsinore, introduced a measure urging the governor to call a special session of the Legislature, limit the ruling to just the Dynamex workers, and provide that the ruling didn’t apply to other contractors for two years.  It was met with crickets.

The court’s ruling is in fact so harmful that it’s inspired socialist U.S. Sen. Bernie Sanders. He’s introduced a bill in Congress that would apply the ABC test to federal labor law. That alone confirms just how far out of line the justices were.

 

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.