Job Killer Bill Will Drive Up Prices, Threaten Businesses, Consumers with Litigation

A California Chamber of Commerce-opposed job killer bill that would increase prices for consumers and businesses who utilize the services of independent contractors will be heard in the Assembly Labor and Employment Committee on Wednesday.

AB 1727 (Gonzalez; D-San Diego) if passed, will stifle innovation, create higher prices and costly litigation for consumers, jeopardize the use of independent contractors in almost every industry, and create uncertainty for years in California until the courts can resolve the legal debate of whether allowing independent contractors to set prices is lawful conduct.

“The bill allows independent contractors to collectively bargain on terms of their contract, such as prices, when they will accept an assignment and when they will terminate an assignment,” explains Jennifer Barrera in the latest CalChamber Capitol Report video. “AB 1717 also includes the threat of litigation against consumers and businesses, with the threat of triple damages.”

Applies to All Industries, Not Just “Gig Economy”

While much of the focus of this debate has been on technology companies, the reality is AB 1727 applies to independent contractors in all industries. The definition of “hosting platform” is any “facility” used to connect people or entities seeking services or work with those who want to perform such work, through the use of any medium, including but not limited to, a dispatch service, website or other Internet-based site.

A mere telephone conversation with an intermediary to connect two people for the purpose of engaging one another in a contract for services or work would qualify as a “hosting platform.”

The CalChamber cannot think of one industry that does not utilize a “facility” through some type of medium to locate and hire independent contractors. Accordingly, the scope of this proposal is broad and its onerous bargaining requirements will have a detrimental impact on California’s economy.

Harm to Consumers through Higher Prices, Litigation

If AB 1727 were enacted and independent contractors are allowed to collaborate and set prices or terms and conditions of every contract with which a person or entity interested in retaining their services is required to comply, prices for consumers would increase dramatically.

Given the broad scope of this proposal, independent contractors who perform accounting services, home maintenance, child care, elder care, educational tutoring, professional consultation, etc., could determine a set price for their services that could essentially price consumers out of the market.

For example, what if independent contractors of a nanny service collaborated to set the minimum price of their services at $30 an hour? A working family that relies upon the use of such independent contractors to make ends meet would no longer be able to work and afford child care.

Plumbers, electricians, mechanics, all of whom perform necessary services for consumers, additionally could set rates so high that middle-class consumers who are financially strapped will no longer be able to afford these services. The examples of the types of industries and independent contractors this bill affects are endless given the scope of individuals and industries to whom this bill applies.

Moreover, AB 1727 exposes consumers of such services to costly and expensive litigation. Specifically, AB 1727 requires a “person” that terminates the services of an independent contractor who has engaged in any of the protections of AB 1727 within one year preceding the termination to provide a detailed statement of the reasons for the termination. Failure to do so exposes that “person” to civil litigation with a threat of treble damages.

Accordingly, a consumer who chooses to no longer utilize the services of an independent contractor because the independent contractor collectively bargained to set higher prices must provide the independent contractor with a detailed statement of the reasons for the termination or face costly litigation for failing to do so. Imposing higher prices on consumers and then exposing them to costly litigation for failing to comply with onerous Labor Code requirements is unfair to working families that rely upon these services.

Discourages Innovation, New Work Opportunities

The “gig economy,” which allows individuals to control their work schedules, such as days and hours of work, as well as the total number of hours they work, is a new model that actually benefits the worker.

Thousands of individuals have embraced and enjoy this opportunity to supplement their income through this model or use it as a primary source of income. AB 1727 would destroy this innovation and eliminate the flexibility and opportunities that workers currently enjoy.

By allowing a minority of workers in the industry to essentially dictate the prices and contractual terms of engagement, this bill will force such companies to limit opportunities for workers. Increasing costs for such companies will force the company to limit the number of workers they can engage, or significantly increase costs to consumers, either of which will have a negative impact on California’s economy.

Although AB 1727 does not require all individuals to collectively bargain, it will nonetheless destroy this emerging work opportunity. To the extent that a minority of such individuals create multiple work units for purposes of bargaining, with different terms and conditions, the administrative burden of negotiating and implementing such varying standards will force these companies to limit their workers and the opportunities available.

There is an assumption that discouraging or burdening the use of independent contractors will automatically result in a rush for businesses to directly hire more employees. This argument has been utilized in the past to encourage other labor legislation and has not been proven valid. There is not an equal ratio between reducing the use of independent contractors and hiring new employees. Instead, the result is simply a loss of work opportunities for the independent contractors.

Is Likely Unlawful, Will Create Uncertainty Until Struck Down by the Courts

AB 1727 creates significant federal legal issues with regard to the Sherman Antitrust Act. The Sherman Antitrust Act essentially prohibits private business activity that will ultimately harm consumers, such as engaging in price setting for services. The U.S. Supreme Court has noted that the act’s purpose is “to suppress combinations to restrain competition and attempts to monopolize by individuals and corporations.”

The U.S. high court has recognized an exception to this when the state is engaged in the anticompetitive practice, rather than private parties. However, such state action must satisfy a two-pronged test: 1) the challenged action must be clearly articulated and affirmatively expressed as state policy; and 2) the state must be actively engaged in regulating the conduct.

Under AB 1727, there is no clearly articulated policy as to the need for independent contractors in almost every industry to have the ability to bargain collectively. Second, the state is not “actively engaged” in the mandated bargaining, as required. In fact, the State Mediation Conciliation Agency is involved only when asked to “facilitate” a hosting platform’s obligation to negotiate, such as providing “meeting space,” to mediate a dispute, or to investigate a claim alleging a violation. Otherwise, there is no state involvement.

Under AB 1727, 10 independent contractors can enter into an agreement to set prices with a hosting platform, and never utilize or seek assistance from the state at all. Given that AB 1727 permits private participants to set prices for consumers without oversight by the state, it is likely a violation of the Sherman Act.

AB 1727 Will Create Extensive Litigation

Not only will AB 1727 create litigation given the looming question of whether it is legal, but also the statutory scheme it creates leaves consumers and hosting platforms exposed to costly litigation.

AB 1727 includes a private right of action against both a consumer and hosting platform with the threat of treble damages for any violation of the legislation. AB 1727 also is actionable under the state’s unfair competition law, Business and Professions Code Section 17200.

Action Needed

AB 1727 will be heard in the Assembly Labor and Employment Committee on April 20. The bill has also been referred to the Assembly Judiciary Committee with the hearing on April 21.

Contact your Assembly representatives and urge them to oppose AB 1727.