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.