State High Court Ruling Could Have Big Impact on 'Gig' Firms

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The Uber logo is seen outside the Uber corporate headquarters building in San Francisco. (Josh Edelson/AFP-Getty Images)

In a ruling that could bring major changes to the way Uber, Lyft and other major "gig" employers do business, the California Supreme Court has imposed new limits on how firms classify workers as independent contractors.

In a unanimous decision delivered Monday, the state high court prescribed a simplified test for determining whether someone conducting work for a company should be treated as a contractor or as an employee eligible for minimum wages, work breaks and other benefits.

"What this means for the gig economy is that companies are going to have to look long and hard at whether they're misclassifying their workers for purposes of wages and minimal working conditions under California law," Veena Dubal, an associate professor who specializes in workplace legal issues at UC Hastings College of the Law, told KQED.

The ruling came in a 2005 lawsuit brought by drivers for a nationwide package delivery company, Dynamex Operations West. Until 2004, the firm had treated the drivers as employees. But in a move to cut costs, the company converted them to independent contractors -- responsible for all of their own expenses though required to wear a Dynamex shirts and badges.

The "ABC standard" the court adopted -- already in force in Massachusetts and New Jersey -- presumes that a worker is an employee unless three conditions are met:

  • That the worker is free from the control and direction of the hirer in connection with the performance of their, both under the contract for the performance of the work and in fact.
  • That the worker performs work that is outside the usual course of the hiring entity’s business.
  • That the worker is customarily engaged in an independently established trade, occupation, or
    business of the same nature as that involved in the work performed.

The Monday ruling applies only to the Dynamex delivery drivers. But experts in employment law said the decision's effects could ripple throughout the gig economy -- including firms like Uber and Lyft that so far have been largely successful in fending off legal efforts challenging their classification of drivers as independent contractors.

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Some expert opinions voiced in other outlets:

From The New York Times:

“It’s a massive thing — definitely a game-changer that will force everyone to take a fresh look at the whole issue,” said Richard Meneghello, a co-chairman of the gig-economy practice group at the management-side law firm Fisher Phillips. ...

... In a recent case involving the restaurant ordering and delivery service GrubHub, for example, a California judge found that food delivery was a regular part of the company’s business in Los Angeles, where the plaintiff worked, potentially satisfying the ABC test. But she ruled in favor of the company, concluding that it did not exert sufficient control over the worker to be considered an employer.

Shannon Liss-Riordan, the attorney for the plaintiff in that case, said she would seek reconsideration in light of the new ruling.

GrubHub said in a statement that it was aware of Monday’s ruling but could not comment because of the appeals process in the case, other than to say it “will continue to ensure delivery partners can take advantage of the flexibility they value from working with our company.”

And from the San Francisco Chronicle:

Andrew Livingston, a lawyer for employer organizations in California that filed arguments in support of Dynamex, said the ruling abandoned a standard that California courts had used for 30 years to determine employment status, based largely on how much control a business exercised over wages, hours and working conditions.

“This will create challenges for employers,” Livingston said. “At least for wage and hour purposes, this will increase the number of individuals who are considered employees in California.”

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