New Employment Laws for a New Generation?
By Danya Shakfeh
Technology has been disrupting employment law for decades leaving workers without rights, and employers in constant limbo about their duties. This disruption involves largely the blurring of employees and independent contractors and the rights and responsibilities that accompany each status. Given that employees’ rights and designations are strictly derived from statute and that employment laws are strictly “positive laws” (i.e., they have no moral or “natural law” bases),1 workers rely strictly on the government to discern and enforce their rights. Similarly, employers’ duties and liabilities also derive strictly from the government.
Thankfully, recent Illinois legislation has expanded the rights of workers regardless of their employment classification. Specifically, the Illinois legislature enacted HB 2622, an amendment to the Illinois Human Rights Act, which redefines “employer” as one that employs at least one person versus the previous definition of employing 15 or more people. The second pertinent legislation is the Workplace Transparency Act (WTA), which was passed in June 2019 and will become effective as of January 1, 2020.3 What is most notable about the WTA is that it protects non-employees (i.e., independent contractors) from discrimination and harassment. Before the enactment of the WTA, the Illinois Human Rights Act (IHRA) only protected employees with certain civil rights protections, and independent contractors had no such rights, aside from basic tort liability protection.
As the “gig economy” is becoming more pervasive and replacing traditional employment relationships, it is time for legislation and employment laws to keep up with the change in the employer-employee relationship. A gig economy is defined as a labor market that is characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.4 The gig economy also creates a situation whereby workers are heavily dependent on the employers but without receiving the rights that come with employment and without a remedy in the event of abuse. Being classified as an employee also comes with a host of other rights such as the right to unionize, wage rights, the right to file labor complaints, and freedom from discrimination. Further, as technology makes it is easier for businesses to secure remote workers, the prevalence of the gig economy also makes it more difficult for workers to secure full-time employment. This is where the WTA is extremely helpful because independent contractors will be protected in ways they previously were not.
One highly watched case of worker classification and rights in the gig economy involves Uber Technologies, Inc, commonly known as “Uber,” a well-known ride-sharing service. In,https://scholar.google.com/scholar_case?case=6460059093768643370O’Connor v. Uber Technologies, Inc., 82 F.Supp.3d 1133 (2015), a nation-wide class action case filed in the Northern District of California, Uber drivers alleged that Uber violated various federal and state laws by misclassifying them as independent contractors as opposed to employees.5 Although this litigation was filed in California, as will be explained below, Illinois attorneys should be keeping an eye on how this all plays out. At the heart of the O’Connor case was whether Uber has control over its drivers as control is one of the key elements in determining whether a worker is an employee or an independent contractor.6 In their class action lawsuit against Uber, the plaintiff drivers argued that they are misclassified as independent contractors and should be classified instead as employees due to their dependence on Uber for their livelihood and Uber’s control over them. The drivers alleged that Uber benefits from the independent contractor classification because as long as the drivers are classified as independent contractors, Uber is not legally required to compensate the drivers for their expenses, provide health insurance benefits, sick days, and other legally mandated employee benefits. Uber has 60,000 drivers and, in 2018, realized a revenue of $11.3 billion.7 Based on Uber-reported number of employees, Uber seems much smaller than it really is. According to Uber’s website, it has 22,000 employees,8 but this does not include the 60,000 drivers deemed independent contractors by Uber.
In March 2015, using California’s Borello9 test of employment which was previously established by California’s Supreme Court, the O’Connor Court denied the plaintiff class’ motion for summary judgment because there were genuine issues of material fact as to the issue of control. The Borello test uses several factors to determine whether a worker is an employee or independent contractor with the principal test being whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result, in addition to the employer’s control over employees.10 In O’Connor, when considering whether Uber had control over its drivers, the Court considered whether Uber could fire a driver at-will. Uber argued that it could terminate drivers only if there was a material breach of the governing contracts. The drivers argued that the governing contracts allowed Uber to terminate its drivers at any time, similar to an at-will relationship. O’Connor at 1149-1150>. This is where technology played an interesting role because Uber would often deactivate a driver’s access to the Uber application if the drivers did not accept leads to Uber’s satisfaction, which undermined Uber’s argument that it only fired its drivers if there is a material breach of contract.11 This deactivation process, the plaintiffs argued, was a form of control over the drivers and bolstered the drivers’ claim that they should be classified as employees.12 Ultimately, the Court ruled that this determination of control to determine the employment status is best left for the trier of fact. Subsequently, after the Court denied summary judgment, the parties entered into a settlement for $20 million in March 2019 and Judge Edward M. Chen, approved the settlement on August 29, 2019. The settlement terms include Uber modifying its driver deactivation process.
In a letter issued on April 29, 2019, the United States Department of Labor issued a letter stating that gig workers generally are independent contractors and not employees.13 Although the controversy was centered around wage claims, the Uber case underscores how technology and the gig economy can blur the lines between employees and independent contractors when using the current tests of employment.
In 2018, California adopted the “ABC test” and abandoned the Borello test, for evaluating employment classification for the purpose of California’s Industrial Welfare Commission (IWC) Wage Order in its landmark decision Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018). The ABC test presumes that all workers are employees unless the employer can demonstrate all of the following:
(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.14 Summarily, the ABC test is stricter than the Borello test and renders more workers independent contractors.
The ABC test is not unique to California and is commonly used all over the country, including in Illinois, which codifies the ABC test for the purposes of unemployment benefits. Under Illinois’ Unemployment Insurance Act, a worker is also presumed to be an employee unless an employer can demonstrate that the employee meets the requirements of the ABC test. Ill. Admin. Code tit. 56, § 2732.200 (2008).
Although the O’Connor case and passage of other legislation affecting the rights of independent contractors are taking place in California, Illinois employers should take notice of the changing landscape as Illinois may follow suit in amending laws in light of the controversies surrounding the gig economy.
As previously noted, Illinois passed two laws that also altered the rights of independent contractors and employees. To reiterate, they are HB 262, which now defines an employer as a person employing one or more persons for the purposes of claims involving rights under the Illinois Human Rights Act.15 This means businesses of all sizes are now subject to laws regarding discrimination of employees, not just those that have 15 or more employees. This change in employee minimum requirements is likely due to the fact that with technology and automation, businesses are now outsourcing various tasks and can effectively run large enterprises with relatively few employees. One reason why revenue matters in cases of discrimination is that it may have been previously presumed that smaller businesses did not have as much market power as larger companies. However, as technology allows companies to bring in revenue without being a “large” company, businesses can now generate 6-figure revenues without a large employee base since these businesses are making more use of independent contractors. This trend of high-earning businesses with few to no employees is reflected in many publications such as The Million-Dollar One-Person Business by Elaine Pofeldt.16 Although the title signals that these businesses consist of only one person, Pofeldt explains in her book that these business structures generate lots of funds by outsourcing tasks to other companies or to freelancers. At some point, many of these businesses do take on employees but gone are the days that a business needs to employ a dozen people before generating significant revenue or having an influence on the market.
The second law, as noted above, is the Workplace Transparency Act (WTA), which was passed in June and will become effective as of January 1, 2020.17 What is most notable about the WTA is that it protects non-employees (i.e., independent contractors) from discrimination and harassment. Before the enactment of the WTA, under the Illinois Human Right Act (IHRA), only employees had certain rights and independent contractors had no such rights. With the increasing reliance on independent contractors, this is a big win for social justice advocates. Violating the WTA could result in an award for a plaintiff that includes attorney’s fees. See Section 3-25 of the WTA This expansion of protection of independent contractors is also a nod to the fact that businesses are developing without traditional employees and the growing gig economy. Combining the terms of the IHRA and the WTA means that all employers are subject to regulations involving harassment and discrimination and all workers, regardless of their formal employment status, receive these same rights.
Illinois employers and attorneys who advise business clients should take notice of the changing laws in California and the impact the gig economy is having on the law in general. Illinois standards for determining employment classification are similar to California, specifically as found in the ABC test. However, unlike California, Illinois has thus far only passed legislation that gives independent contractors more rights, without reclassifying them as employees. On the other hand, giving independent contractor rights versus requiring employers to reclassify them will likely save businesses a great deal of litigation as it will not allow employers to challenge classification of their workers.
As technology changes, the employment landscape through automation and remote workers and the gig economy continues to be more prevalent, lawmakers should reconsider the utility of distinguishing between employees and independent contractors. In other words, do the reasons for creating these employment classifications still exist? Or are these classifications being abused by some employers resulting in a disproportionate benefit to the employer? Lastly, as the newly passed Illinois laws cited above demonstrate, lawmakers may continue to reconsider whether employee rights should be dependent on a worker’s employment classification.
5. Id. at 1135
6. Id. at 1138
9. S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (Borello), 48 Cal.3d 341, 355 (1989)
Danya Shakfeh is the managing member of Shakfeh Law LLC, based in Oak Brook, Illinois. Her firm’s practice centers on business, contracts, non-compete agreements, and litigation. She has also been selected as a Rising Star by Illinois Super Lawyers for the years 2015-2020. She can be reached at www.ShakfehLaw.com.