On Tuesday, the House passed the Protecting the Right to Organize Act, also known as the "Act." The House originally passed the Act in early 2020, but the bill was never addressed in the Senate. The House passed it again Tuesday (vote of 225-206). President Joe Biden put out a statement Tuesday voicing his support. Most important for the real estate industry, the Act encourages union empowerment, especially in “right to work states.” "Right-to-work" laws restrict union membership, as employees can't be forced to join a union or pay dues. The Act would also give the National Labor Relations Board the ability to penalize companies that do not comply with fair labor practices. The Act expands the definition of “employee" to include independent contractors and prohibits certain anti-union actions and retaliation toward workers who participate in organizing.
The Act follows the policies enunciated in the Dynamex Operations West, Inc., v. the Superior Court of Los Angeles County (4 Cal.5th 903, 2018), in which the Court embraced a presumption that all workers are employees, not contractors, placing the burden on the employer to establish a worker is an independent contractor, rather than an employee. Dynamex is a courier and delivery service that had reclassified its workers as independent contractors rather than employees. The Court adopted a test to determine if the worker is truly an independent contractor versus employee, known as the "ABC Test." The ABC Test requires the employer to demonstrate evidence the worker is not an employee, by estblishing the following:
(i) the worker is free from the control and direction of the employer (not just by written contract but in fact);
(ii) the worker services are outside the scope of the employer’s usual business; and
(iii) the worker is engaged in an independent trade, occupation, or business same as the services provided.
If the Act is approved in the Senate, many aspects of Dynamex will become federal law, including the ABC Test. The Act will have a substantial impact on traditional freelancers in the “gig economy.” Many writers, musicians, artists, delivery people, construction workers, and independent sales agents might find themselves reclassified as employees requiring companies to engage workers as full-time employees with benefits, including Social Security and Medicare contributions. As the Act prevents employers from classifying workers as independent contractors or as supervisors, (exclusions from the National Labor Relations Act), collective bargaining and union representation may more readily expand to include former independent contract workers re-classified as employees.
Brokerage firms would have difficulty proving their brokers and sales staff are truly independent contractors. A workaround appears to be for individual brokers to incorporate to avoid being categorized as an employee. Realtors become employees of their own corporation, and their brokerage firm has a business-to-business independent contractor relationship with that new entity. Those realtors that don’t incorporate will be classified as employees, which includes shifting of Medicare and Social Security payment obligations from worker to the employer.
The Act passed the House but faces greater hurdles in the Senate, where a Republican filibuster may block passage. No word on if or when the Senate may consider the bill.
Robert Feldman
Attorney at Law
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