Gig economy: Employees or contractors, that is the question

Do Uber drivers and TaskRabbit handymen deserve a standard wage from the company? The California Supreme Court seems to think so.
7 August 2018

Gig platforms are appealing to California Governor Jerry Brown, asking to save them from the Supreme Court ruling. Source: Eric FEFERBERG / AFP

Ordinarily, when you think of the gig economy, you think of employees working out of coffee shops, doing the jobs they love: Coding, designing, and editing photos and videos, for multinational companies or platforms. But those aren’t all the jobs that the gig economy provides.

Drivers, food and grocery delivery operators, and various other handymen too, are part of the gig economy.

Overall, these jobs are a significant source of income for 34 percent of the US workforce, and according to a study CNN cited recently, that number could grow to 43 percent by 2020.

However, in California, leading Gig companies such as Uber, Lyft, Handy, TaskRabbit, Square, Postmates, Instacart, and DoorDash, among many others, are worried that a Supreme Court ruling might “decimate (their) businesses”.

The ruling in question came in the form of an opinion in Dynamex Operations West, Inc. v. Superior Court.

For the purposes of the wage orders adopted by the state’s Industrial Welfare Commission, the opinion clarified the standard for determining whether workers in California should be classified as employees or as independent contractors.

As a result, the court said that individuals will be presumed to be employees and that classifying them as independent contractors will require the entity to prove it is using the ABC test.

Supreme Court’s new ABC test

The court held that it is the burden of the hiring entity to establish that a worker is an independent contractor who was not intended to be covered by the applicable wage order.

To meet this burden, the hiring entity must establish each of the following three factors, commonly known as the “ABC test”:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The problem, for companies in the gig economy, is that they fail the test, and thus, need to pay their “employees” a standard wage (and benefits) – which goes completely against their business model.

Democrats to the rescue?

It seems as though some of the top gig economy companies such as Uber, Lyft, and TaskRabbit have put their differences aside and banded together to quietly lobby for California’s top Democrats such as Governor Jerry Brown and Lieutenant Governor Gavin Newsom, to provide them some relief.

According to Bloomberg, business leaders are hoping to blunt the ruling’s impact, either through legislation or through executive action by the governor. Any support or action, however, will set the tone for the national debate over the rights and roles of workers in the modern gig economy.

A letter by nine of the gig economy companies and addressed to Governor George Brown that the magnitude of this issue requires urgent leadership and warned that the ruling might stifle innovation and threaten the livelihoods of millions of working Californians.

According to the letter, without political intervention, the new ruling will “decimate businesses.”

Brown and Newsom, both of whom are pro-tech and pro-worker, are the tech industry’s best bet. A compromise they come up with is most likely to support businesses in the gig economy while also satisfying other stakeholders – and potentially being replicated nationwide.

Governor Brown’s term ends in January, so discussions and amendments are expected to come soon.