Securing direct selling’s independent contractor exemption going forward.
Last month, the Direct Selling Association applauded California Governor Gavin Newsom for signing Assembly Bill 5, which includes an exemption for direct sellers. Without the exemption, the bill would have created an uncertain framework for more than 2.2 million Californians involved in direct selling.
“We want to thank Assemblywoman Gonzalez and interested stakeholders for working with DSA and including exemption language,” said DSA President Joseph N. Mariano in a press release. “This language will allow the direct selling industry to continue thriving in California and independent salespeople to continue having the freedom and flexibility to operate their businesses. We want to thank all our member companies who engaged with elected officials in California to express the importance of the business.”
The DSA explains that the language in the bill incorporates state Unemployment Insurance Code Section 650, which has classified direct sellers as independent contractors for over 20 years. The DSA also stated in the press release that it hopes state and federal elected officials consider similar bills to include similar language that direct sellers are clearly and specifically independent contractors.
I invited Brian Bennett, VP, Government Affairs and Policy at the DSA to get further clarity if/how this action in California affects our channel going forward.
“Thirty-nine states clearly define direct sellers as independent contractors.”
Yes, we’re happy our channel was granted the exemption, but shouldn’t the DSA also stand in solidarity with other gig economy companies who need the same exemption?
Throughout the process, we were engaged with the “I’m Independent” Coalition. It included a variety of industries utilizing independent contractors, including platform companies. Together, we sought legislative language that would have applied to a larger breadth of industries. However, as we moved through the process, a broad legislative solution would not have been specific to direct sellers and most likely would not have provided the protections we needed. I think it is safe to say most, if not all, companies and associations in the Coalition had the same strategy as DSA and ultimately sought a specific exemption, although few were successful.
Doesn’t the passing of this bill set a dangerous precedent going forward for all independent contractors, regardless of industry?
The fight in California was not our first, nor will it be our last. That said, DSA has had great success at the state level over the past 40 years. Thirty-nine states clearly define direct sellers as independent contractors. In addition, direct sellers are also defined as independent contractors under the Internal Revenue Service Code. The new AB 5 has empowered state legislatures across the country and Members of Congress are having active discussions about the “Future of Work.” DSA has been, and will remain, engaged in these conversations to ensure a positive outcome for direct sellers.
Are you confident that direct selling will always get the same exemption if other states follow suit?
Every state, and bill filed will be different. We were fortunate that the political dynamics in California helped in granting exemptions for certain industries, including direct sellers—but, that may not always be the case. Short of a specific exemption, we will always work to ensure any legislation enacted has no harmful impacts on our businesses.
“Short of a specific exemption, we will always work to ensure any legislation enacted has no harmful impacts on our businesses.”
What is your assessment or knowledge of other states that will pass similar legislation? What are direct selling caucus members saying for example?
Other states, such as New York, are still trying to navigate what legislation can feasibly be passed. The process varies from state to state—from having a straight California bill that would put the ABC test into statute (with or without exemptions), to creating a new category of worker that will have some benefits of employment status, but also the freedom and flexibility of being an independent contractor. Most state legislatures will not meet again until January, so they are spending this time talking to stakeholders and analyzing what is achievable for next session.
What can the DSA do at the state level to encourage the same outcome as California?
As in California, we worked together to clearly demonstrate the substance of our position. There are times when state legislators, who are initially supportive of minimizing the use of independent contractors, need to understand the benefits that come from utilizing independent contractors. In addition, there is an Independent Contractor Working Group under the Government Relations Committee that is analyzing these specific issues and approaches. The group is comprised of people from numerous member companies, and we are working together to develop a strategy for future states that we will need to respond to legislation. The task force is also identifying other states to more clearly define our status as independent contractors.
At a direct selling company level, what should executive leadership be doing to help in the cause?
The easiest and most important thing you can do is get to know your local elected officials—preferably before there is a problem. These are the easiest and most important relationships to build. If they know you and your company, they can be helpful when specific policies and proposals arise that can impact your company. In addition, member companies can go to the company grassroots advocacy page on the DSA website, https://www.dsa.org/advocacy/company-grassroots-advocacy . It includes a variety of resources for how to engage in advocacy. Finally, it’s also important to have buy-in from the senior levels of leadership and designate a member of your team to be the government affairs contact for the company so they can participate in the DSA Government Relations Committee.