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 multipart 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.
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 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.