By Levi Sumagaysay And Ethan Baron The Mercury News
WWR Article Summary (tl;dr) The ruling could eventually require ride-hailing companies and others to provide benefits and a minimum wage for so-called gig workers.
The Mercury News
A sweeping California Supreme Court ruling that redefines when employers can classify workers as independent contractors could blow up the business models of Uber, Lyft and dozens of other companies that rely on gig workers.
The decision, handed down Monday in a case involving delivery drivers for a Southern California company, may lead to many more California workers being classified as employees, with the higher pay and legal protections that classification entails.
"This is an earthquake, a seismic shift" in the long-running question of employees-vs.-contractors, Beth Ross, an Oakland-based employment attorney for law firm Leonard Carder, said Tuesday. "If I were a gig-economy employer, I'd be taking a deep breath today and I'd be on the phone to my lawyers to discuss risk assessments."
The state's highest court in its 85-page ruling rejected the multi-part existing standard for determining when a worker is an employee in favor of a simpler "ABC" standard, used in New Jersey and Massachusetts.
Under the new test, a worker can be considered an independent contractor only when a company can show the worker controls his or her work, that the duties go beyond what the business normally does, and when the worker "is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity."
The ruling could eventually require ride-hailing companies and others to provide benefits, and a minimum wage, for so-called gig workers, experts said.
These companies have long argued that because of the flexibility their workers have about when they can choose to accept work, they should be classified as contractors. But it will be difficult for these companies to make the new argument the court ruling requires to classify an employee as a contractor: that the duties of their drivers go beyond what the business normally does, experts say. Driving paying customers from one place to another is the essence of a ride-hailing business.
"The push from these companies has been 'we're different and the rules don't apply to us,' but they're wrong," said Jean Hyams, a labor attorney at Levy Vinick Burrell Hyams in Oakland, Tuesday.
However, while the court's decision signals that more California workers should be considered employees, it doesn't mean companies like Uber and Lyft have to immediately classify their drivers as employees, said University of San Diego law professor Orly Lobel, a labor law specialist.
"I don't think we shall see voluntarily change, reclassification by any of these companies, anytime soon and I also don't think they will change easily even with the initiation of a lawsuit," Lobel said. "It would probably take a state regulator ... to force change, but I don't predict that happening soon."
Uber declined comment on the case, which involved delivery drivers at a company called Dynamex who had been employees until the company changed the relationship in 2004. Lyft did not respond to a request for comment.
The California Labor Commissioner's office is likely to align its worker-classification policy with the high court's ruling, said Michael Warren, a lawyer at the San Jose firm McManis Faulkner.
"Generally speaking, this is a new standard that employers are to use when determining how to classify their workers, whether it be employee or an independent contractor," Warren said.
If the commission adopts the court's ruling as state policy, workers who believe they are incorrectly classified as contractors would have two options: a lawsuit or a complaint to the Labor Commissioner, Warren said.
The ruling will likely trigger a flood of lawsuits against a variety of firms that use workers classified as contractors, Lobel said. "I would predict that we will see a surge in new class actions against both gig and more traditional ... companies," Lobel said, adding that FedEx and McDonald's could be among those targeted in legal action.
Ross and her firm have been involved for years in helping to secure settlements for FedEx drivers, many of whom could be affected by Monday's ruling. You don't think gig economy when you think of FedEx drivers, but they have been fighting to be considered employees far longer than Uber and other on-demand companies have been around. The ruling also could affect old cases involving drivers for taxi and trucking companies, said William Gould IV, Charles A. Beardsley Professor of Law, Emeritus at Stanford Law School.
"It understates the matter that those relationships are in jeopardy," said Gould, who is also a former chief of the National Labor Relations Board.
Experts estimate that employees cost companies up to 30 percent more per worker than an independent contractor. As the on-demand economy has grown, startups have gone under or have had to make drastic changes amid pressure to re-classify their workers as employees.
Uber, one of the world's most well-funded startups, is valued at $72 billion and can probably weather this storm, experts say.
On the other hand, "smaller companies, the port truckers, the bike messengers, they don't have that cash," Ross said. "The decision in Dynamex is the end of the story. There's very little way out."
As for ride-hailing drivers, they may have reason to celebrate but still face hurdles.
"Now, the biggest bar to gig economy workers prevailing on their wage claims in California may well be arbitration clauses," said Shannon Liss-Riordan, a Boston lawyer who says she has litigated many cases in Massachusetts, where the ABC standard applies.
"Throughout multiple industries, courts applying this test have held workers to be employees," she said, adding that the test "will provide much greater clarity to workers, employers and courts."
In February, a GrubHub delivery driver represented by Liss-Riordan was ruled a contractor by a federal judge in California. Liss-Riordan said Tuesday that she plans to ask that that case be sent back to a lower court to apply the new test. Liss-Riordan also represented Uber drivers who in 2016 won a multimillion-dollar settlement in a case that failed to resolve the contractor-vs.-employee question.
The number of workers that Monday's decision could affect is hard to pin down, but an NPR/Marist poll conducted in December 2017 of 1,267 adults found that 1 in 5 jobs in the United States is held by a contract worker.