Does the CARES Act Create a New Standard of Who is an Employee? Congress recently based CARES (Coronavirus Aid, Relief, and Economic Security Act) in an effort to ameliorate the effects COVID-19 has had on the economy. Millions of workers have found themselves “out of a job” in recent weeks because of the Coronavirus. Many of those workers received wages and were classified as employees by their employers. These workers could file for unemployment benefits as any other employee who was terminated by their employer.
With the rise of the gig economy, many workers finding themselves “out of a job” were not able to readily file for unemployment under the traditional unemployment rules. Many gig economy workers are classified as independent contractors by the entities that pay them. For example, Uber and Lyft classify their drivers as independent contractors. Under the traditional unemployment rules, a gig economy worker like an Uber or Lyft driver could not file for unemployment benefits if they found themselves not earning any income.
Congress saw the problem that thousands (perhaps millions) of gig economy workers would find themselves out of work and unable to collect unemployment benefits. These workers would be left out in the cold while workers who happened to receive employee treatment from their employers would get unemployment benefits. Under CARES, Congress relaxed the traditional unemployment rules, paving the way for gig economy workers to file for unemployment benefits.
The question remains to be asked is whether Congress is also paving the way for stricter employee classification rules. In 2018, the California Supreme Court issued the Dynamex decision which created a three part ABC test for wage orders in California. The California Supreme Court based its ABC test on Massachusetts law.
For wage order purposes, a worker could only be considered an independent contractor if it passed all three prongs of the ABC test, namely (A) the worker is free from control from the hiring entity, (B) the work performed is usually outside the usual course of the hiring entity’s business, and (C) the work is customarily engaged in an independently established trade or business. In 2019, the California Legislature passed AB5 which extended the Dynamex holding to employment taxes and other areas of employment law to almost all California workers. The ABC test makes it more difficult for businesses to treat a worker as an independent contractor.
Commentators have suggested other states may follow suit and either adopt the ABC test or some other test that makes it more difficult for businesses to treat workers as independent contractors. Commentators have also suggested that the federal laws may change to adopt some stricter standard.
With CARES, Congress was not willing to change the definition of employees or independent contractors for payroll tax and other purposes. It simply extended unemployment benefits to “self-employed” workers rather than attempt to re-work the definition of which workers should be classified as employees and which workers should be classified as independent contractors. The “self-employed” workers that can claim unemployment benefits under CARES would include gig economy workers, but could also include other business owners who have more traditional business models like brick and mortar store owners.
The debate over the question of which workers should be treated as independent contractors and which workers should be treated as employees is far from over. The recent COVID-19 epidemic has shed light on the millions of gig economy workers that don’t receive the benefit of the traditional safety net that protects millions of other workers in more traditional job settings. AB5 and Dynamex has also prompted a backlash by businesses that find the ABC test is creating unreasonable burdens or may even be unlawful. Gig economy platforms led by Uber and Lyft are pushing for a ballot measure to create new exceptions to the ABC test. Other businesses are challenging AB5 in court and have even found some success.
Published by Joseph Cole JD, L.MM.