Gig economy companies, don’t hold your breath

The California Supreme Court recently ruled in Dynamex Operations W. v. Super.
Gig economy workers had a big win
Gig economy companies had a big loss
The decision is significant as it will soon (after challenges) affect Uber and others, throughout the massive California economy, and it will (I expect) be embraced by other states. No state or municipality likes lost tax revenue. Even in recessions and when states are facing enormous hardships, first lever they pull is to staff up their financial audit and compliance divisions. Hard to collect from contractors and requires enormous resources to coerce and collect and then coerce some more, or you can go after the employer.
The decision could eventually require companies like Uber to follow minimum-wage and overtime laws and to pay workers’ compensation and unemployment insurance and payroll taxes, converting contractors to employees could increase an employer’s costs by about 25 to 40 percent per worker
This ruling puts the burden of proof on companies to show that their relationship with a worker satisfies all of the three prongs of this “ABC” test for them to be deemed to be an independent contractor.
The three factors are whether
The worker has freedom from control over how to perform the service,
The service is outside the business’s normal variety or workplace, and
The worker is engaged in an independently established role.
In addition, a company must show that it does not control and direct the worker, and that the worker is truly an independent business operator, not just classified that way unilaterally.
The test requires that a worker, in order to be considered an independent contractor, must meet all of the following requirements (summary)
(A) free from control in the performance of the services
This factor is part of most tests for differentiating employees from contractors. Uber and similar operations fail this test, Uber et al, lawyers will re-litigate and appeal otherwise, that they use flexible scheduling, the lack of human supervision, the employee’s ownership and choice of vehicle.
(B) the work must be performed outside the employer’s usual course of business
Is the work integral to the employer’s business. Uber easily and unambiguously fails this prong.
(C) the worker must be engaged in an independently established trade or business
Did the worker independently establish this business, or did their business consist of filling out a job application on the company’s website and suddenly becoming an ‘independent businessperson’. Besides the date of creation of the “business,” the court will look to other factors to determine whether an independent business really exists: Do they advertise their services? Do they have a website describing their business? Do they have multiple clients, or have they attempted to obtain other clients? Have they made some kind of genuine capital investment in the business (a personal car is unlikely to be persuasive)? Do they have employees or have they shown an intent to hire employees? “Gig economy” workers fail all of these.
This is a nightmare for the gig economy, they can argue all day about control, they unambiguously fail prongs B and C — and they must pass all prongs in order to classify a worker as a contractor.
Newer, smaller companies will have a much harder time than well-funded companies like Uber and Lyft, which will be better able to absorb costs and have established large labor forces.

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