California's gig economy may be changing, and soon.
In a landmark ruling, the California Supreme Court addressed what defines a contractor. The standards have gotten stricter.
In the case Dynamex Operations West, Inc. v. Superior Court of Los Angeles, the court unanimously agreed upon a new test to decide how to classify workers.
The previous test put the burden of proof on employees to prove they were not contractors. The supreme court adopted a new test, called an ABC test, that shifts that burden onto employers.
The new test uses three burdens of proof that a company must meet to prove their workers are contractors. The burdens are:
A.) That a worker is free from the control and direction of a hirer. This applies to both the contract of the performance and also
B.) the worker performs a job that is outside the usual operations of the hiring business and
C.) that the worker is engaged in an independently established occupation or trade of the same nature as the work being asked by the hiring entity.
This creates a much stricter standard for companies. It also allows a much wider range of jobs to be defined as employee positions. An employee designation enables workers to access benefits like healthcare, overtime or sick leave.
It appears many companies will need to classify their workers as employees under this test. This will affect the gig economy, as it may be more difficult to rely on contracted workers.
How companies like Lyft, Uber or Grubhub adapt remains to be seen. Companies that take advantage of at-will employees will need to reexamine their structure, pricing and hiring policies.
Going forward, a business model based strictly on contracting labor will be intensely scrutinized. Companies looking for temporary workers must prove their business isn’t based solely on contract work.
If you are unsure whether you qualify as an employee, a skilled workers' rights attorney can help.