Misclassified: Hospitality Industry Workers In Sights of Department of Labor
Looking at AB5, the ProAct and Julie Su
AB5
In 2019 California lawmakers passed Assembly Bill 5 that reclassified independent contractors to be hired as full-time employees. Labor groups claimed that workers who were considered independent contractors needed protections that included wage and overtime requirements. This “gig worker” law required independent contractors to pass the “ABC” test to determine their classification. AB5 assumes a worker is an employee of a company unless the classification passes the test. “A person providing labor or services for remuneration shall be considered an employee rather than an independent contractor.” AB5 goes on to define the test as:
(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.
The passage of AB5 in 2019 caused a tsunami of lost work and incomes for many ICs from that continues today. The law change required employers to hire workers permanently and now entitle those workers to benefits like family leave, overtime, and unemployment insurance. From musicians to voice-over artists, content writers, door dashers, and Uber and Lyft drivers, project and platform-based work was instantly stalled as AB5 reclassified these workers as employees. Workers understood how devastating AB5 would be regarding the freedoms and flexibility that platform and project-based work provide. The loss of maximizing employment and income through the ability to work how and when a worker wants, kills the spirit of independent contracting. For employers, it means considerable dents in their bottom line. Consumers are also impacted as rates for worker services rise to meet the wage and benefit requirements.
Many employers who depend on independent contractors to fill these types of roles ceased hiring California workers, causing a huge backlash. Uber and Lyft lead the charge against the passage of AB5 with Proposition 22, which would reverse some of the damage done to rideshare and food delivery drivers. The SEIU, who likely was the creator of AB5, is currently going toe to toe with Uber and Lyft to try and stop Prop 22 from reversing the reclassification of rideshare workers. One would like to assume that the efforts of special interest groups like the SEIU truly benefit workers. Unfortunately, AB5 is the perfect example that this is not the case. This battle is far from over and is beginning to creep into other job sectors, including the Hospitality Industry.
The ProAct
AB5 is the precursor to the ProAct. The Protecting the Right to Organize Act or ProAct is one of the most aggressive attempts to reclassify workers. Labor leaders claim that independent contract work goes against the National Labor Relations Act's protection of a worker’s right to organize. It is no secret that union leaders have been putting their heads together to find ways to organize platform-based and independent workers. In a California Future of Work meeting attended by the FSWA, labor bosses described their frustration with not having access to platform workers because there was no “water cooler” for workers to gather around and discuss their working environment.
By permanently redefining language in the National Labor Relations Act regarding contractors, most independent contractor jobs would end. The NLRA would then require all workers to be considered employees and be paid wages and benefits mandatory for regular non-exempt work.
The ProAct would inject the ABC test into the NLRA, which would then be applied to every worker in every industry to determine their classification.
Julie Su
California’s Labor Secretary Julie Su is now nominated as Secretary of the Department of Labor as current Secretary Marty Walsh is leaving to work with the NHL. Secretary Walsh announced late last year that Hospitality workers are on the menu to be reclassified. On the announcement of her nomination, Su doubled down on her support for the ProAct and its reclassification of workers. In addition, she has come out as an ally for One Fair Wage, attending several OFW functions and declaring that workers making tips face instability in their wages. Su picks up Saru Jayaraman’s(who is also part of the Future of Work Commission) cry to eliminate the tip credit and is highly critical of the tipping culture. After all, she worked in the industry once, one summer a long time ago, and knows how hard it is.
It is easy to imagine that a Julie Su Department of Labor will mean reclassifying tipped workers nationwide, eliminating tip credits, and devastating our jobs. FSWA Director Simone Barron and Restaurant Workers of America President Joshua Chaisson explain their concerns in an Op-Ed for the Portland Press Herald. Chaisson, with the Restaurant Workers of America, was able to fend off labor’s attempt at eliminating Portland’s tip credit last year.
The Cost of Reclassification
The reclassification of tipped workers will be a great stain on our nation. Because the reclassification will require tipped employees to make the minimum wage, tip credits will need to be eliminated to comply with the law. This will be exceptionally hard for small independent restaurants nationwide who rely on the tip credits to keep wages for Back of House workers competitive. Places like Seattle, San Francisco, and other cities that have eliminated the tip credit and raised their wages are seeing an overhaul in pay models and restaurant operations to accommodate the wage hike. For many tipped workers, service charges and the elimination of tipping are the new normal. A reclassification of hospitality workers would put these new norms on steroids.
Just like in the case of the employers of ICs, service industry establishments will be required to pay overtime, paid leave, and other benefits to tipped workers who traditionally do not receive them. For many employers, the added costs that would be incurred if the reclassification of their employees happens would close their doors. It will likely mean less for workers when it comes to flexibility, tips, positions, and places to work. On a national scale, reclassification would cost our economy billions.