Gig Economy Business Model Dealt a Blow in California Ruling

Gig Economy Business Model Dealt a Blow in California Ruling

Gig Economy Business Model Dealt a Blow in California Ruling

The Court held that "in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the "ABC" test". In its ruling, the California court followed the lead of the top court in New Jersey, but the California decision is expected to have a far greater impact because companies such Uber and Lyft are headquartered there.

In a big win for labor advocates, the California supreme court on Monday limited businesses from classifying workers as independent contractors who can not receive key employment protections.

Alternatively, ride-hailing companies like Uber might choose to rein in their operations, providing a more limited platform in which drivers and passengers can negotiate prices and the terms of the service. While the Court's decision will likely have its biggest impact on the state's growing "gig economy" - a topic we have recently addressed more broadly - it will also extend to almost every company that engages independent contractors in California.

As an example, the court said a plumber hired by a retail store to fix a bathroom leak is not performing work that is part of the store's usual business.

For example, employees pay half of their Social Security/Medicare tax while the employer pays the other half. This Cornell Law blog post has details on the criteria, but it boils down to this: If the worker performs a task that is part of the "usual course" of the company's business, he is an employee, not a contractor. Plaintiff, a Dynamex driver classified as independent contractor, alleged that Dynamex improperly classified its drivers as independent contractors instead of employees, depriving those drivers of the protections provided by the California Labor Code and applicable wage order. Businesses that were forced to lay off thousands of employees were slow to rehire, finding they could fill needs with temporary workers and independent contractors, who performed jobs for more than one company.

The court ruled that the employers must be treated like full-time employees who are related to the usual course of business.

Ridesharing apps Uber and Lyft adopted that model, with drivers using their own vehicles and setting their own hours. Legal experts agree, however, that businesses must be able to prove that an independent contractor is actually running his or her own business.

But he cautioned that cases would have to be decided on an individual basis.

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