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Posted by on Jun 15, 2018 in Publications |

The California Supreme Court Addresses the Gig Economy in Dynamex Decision: Independent Contractors, Not Employees

The California Supreme Court Addresses the Gig Economy in Dynamex Decision: Independent Contractors, Not Employees

Almost three years ago, an article was posted on this site discussing the potentially rocky road ahead for the sharing economy, now more commonly known as the “gig economy,” in view of the uncertainty as to whether participants in the gig economy were independent contractors or employees of the services which they used to find work – e.g. Uber and Lyft– and the ramifications when the courts finally addressed the issue.

This uncertainty was directly and recently addressed by the California Supreme Court in Dynamex Operation West, Inc. v. Superior Court (S222732) Much will be written about the legal intricacies, policies, and consequences associated with this eighty-two page decision, so there’s no need to do so here at length. The core decision was effectively that all workers are considered employees unless the company proves they are independent contractors. In order to prove this, the company must establish that (a) the worker is free from the control and direction of the company, (b) that the worker performs work outside the usual course of the company’s business, and (c) that the worker is customarily engaged in an independently established business of the same nature as that involved in the work performed.

In simpler terms, workers are only independent contractors for a business if they (a) are allowed to work independently, (b) are hired to perform work the business doesn’t usually do, and (c) are regularly contracted to do that kind of work. So if Uber hires a plumber to install new sinks in one of its office buildings, the plumber would likely be considered independent contractors under Dynamex because (a) Uber is not going to tell the plumber how to install the sinks, (b) Uber is not in the plumbing business, and (c) installing sinks is a regular part of a plumber’s independent business. On the other hand, an actual Uber driver will likely be considered an employee as (a) Uber exerts control over its drivers, (b) Uber is in the driving business, and (c) Uber drivers are specifically only drivers for Uber (and/or Lyft) – they do not have their own “driving business.”

A word about “free from the control and direction” of the company. This does not mean that a company can exert no control over the work that an independent contractor can perform. Certainly a company can request that a particular type of sink be used or a bride and groom can request that a certain cake be made – such requests do not necessarily transform the relationship from independent contractor to employee; rather, the reference to “free from the control and direction” is primarily a reference to how the work will be performed rather than what the work will be. So while a company can request that the plumber install a certain kind of sink on a specific day and at a specific time, interference with the plumber’s freedom would likely be found if the company exerted control and direction over the actual process of installing the sink by trying to micromanage every step of the installation.

So what are the real world ramifications? There are certainly many wide-ranging ones whose impact has yet to be felt, as in the wake of Dynamex a number of class action lawsuits were almost immediately filed and the exact manner in which Dynamex will be applied by courts has yet to be seen. But there is at least one issue that appear to be of immediate importance. This decision is likely to impact almost every corner of the gig economy, as it is likely that persons working for companies such as Uber, Lyft, and other companies that facilitate the gig economy will ultimately be classified as employees and have to be treated as such.

As such, this may shortly become a “be careful what you wish for” scenario for the gig workers filing these lawsuits. It will not be surprising if a number of the companies that facilitate the gig economy will be unable to remain in business if they have to treat all of their workers as employees. Each person formally classified as an employee will represent a significant financial burden on the company with respect to monitoring hours, ensuring break periods, tracking overtime, providing benefits, and the like – for a company to find that the ranks of its employees have grown, for example, from 10 to 1,000 overnight is a burden that many companies many not be able to cope with and they will go out of business as a result.

So in the drive to obtain more rights and benefits, it may be that workers find they have not merely bit but have completely severed the hand that feeds them. Whether the gig economy – both the workers that depend on it and the companies that facilitate it – can adapt and survive without diminishing the effectiveness of the services provided, or becoming a footnote in history, remains to be seen. What is clear, however, is that the California courts are likely going to have a significant role in determining whether the gig economy lives or dies in this state.

TLDR: Workers in the gig economy should generally be treated as employees, not independent contractors, of the company that facilitates their work.

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If you’re involved in a lawsuit or risk management and have any questions regarding current or potential legal issues, we would urge you to contact an attorney as soon as possible to obtain advice, guidance and representation. At Baker, Keener & Nahra, we have the experience, skill, and drive to get the best possible results for our clients, no matter the size of the case or the scope of the problem. So if we can be of any assistance to you, please contact us and let us know how we can help.