back to article Ahem! Uber, Lyft etc: California Supremes just shook your gig economy with contractor ruling

The business models of Uber, Lyft, Instacart, TaskRabbit, GrubHub and numerous other "gig economy" companies may need an overhaul following a decision by the California Supreme Court to redefine when someone is a contractor or an employee. In a decision this week that went against delivery company Dynamex Operations West, the …

  1. ecofeco Silver badge

    About damn time

    See title.

    1. anothercynic Silver badge

      Re: About damn time

      Hallelujah indeed...

    2. bombastic bob Silver badge
      Stop

      Re: About damn time

      *NO*. Just *NO*.

      I do _NOT_ want gummint limiting my ability to be a direct contractor for any individual or organization. This is just a (yet another) POWER GRAB to force employers to pay into "the system" with payroll taxes, etc.. Just like the earlier rulings that said a contractor can claim unemployment insurance MEANT THAT _I_ HAD TO START PAYING INTO A SYSTEM THAT WILL NEVER GET BACK TO ME. Since I own the corporation, and contract through the corporation, the rules are (for now) a bit different, but GOD DAMN them, because you KNOW that people like *ME* are on their targeting radar, too... [for more money to be extracted, more regulations to be imposed, etc.].

      Even though i'd fail the current ABC test for being "an employee" because a) I do work at home on my own gear, and b) even if I'm on site, it's through a corporation of which I'm an employee. Fortunately I can still choose how much to pay myself with 'wages" and how much "with other things" and things like computer hardware, software, online services, etc. are all business expenses [so they are off the top of revenue, BEFORE being taxed], though it's a wash when you consider all of the OTHER taxes that I have to pay (including that UNEMPLOYMENT INSURANCE that I will never be able to claim - 'FUTA" - I have 'grade F' and the rate is one of the highjest, for some reason - *A* *TOTAL* *RIPOFF*).

      It also makes me wonder about the job-shopping temp agencies. How will this affect THEM???

      1. Anonymous Coward
        Anonymous Coward

        Re: About damn time

        Get a better accountant, if you're the only employee of your Corp and you're paying unemployment insurance your accountant is an idiot or you're not using an accountant which means you need to look for one ASAP.

      2. Anonymous Coward
        Anonymous Coward

        Re: About damn time

        I do _NOT_ want gummint limiting my ability to be a direct contractor

        They aren't. Read the article again (without your CapilistFacist glasses)..

      3. rskurat

        Re: About damn time

        You know someone really means it when instead of using the Caps Lock they take the trouble to hold down the shift key.

  2. Anonymous Coward
    Angel

    Work Choices

    In Australia, under then Prime minister John Howards Work Choices people were being pushed onto contracts, then the Gov set off the trap and designed tax laws that stipulated If a contractor only had one job/contract they were employees not contractors, and could not claim contract related expenses, not even legals etc. This pushed people away from unions just enough to deny them access to help, but fenced them off from the functional capacity and rights and benefits of being a real contractor.

    John Howard and his government was rightly voted out of office as Prime Minister after that terrible fiasco.

    But it could be seen that if a contractor has insufficient contracts, works 35-40 hours for one employer for a year (or pro rata) that they really are an employee and should gain the other considerations.

    Look to the other available elements of contractors (i.e. tax concessions and legals), are they applicable to/for that position.

  3. Anonymous Coward
    Angel

    Work Choices

    In Australia, under then Prime minister John Howards Work Choices people were being pushed onto contracts, then the Gov set off the trap and designed tax laws that stipulated If a contractor only had one job/contract they were employees not contractors, and could not claim contract related expenses, not even legals etc. This pushed people away from unions just enough to deny them access to help, but fenced them off from the functional capacity and rights and benefits of being a real contractor.

    John Howard and his government was rightly voted out of office as Prime Minister after that terrible fiasco.

    But it could be seen that if a contractor has insufficient contracts, works 35-40 hours for one employer for a year (or prorata) that they really are an employee and should gain the other considerations.

    Look to the other available elements of contractors (i.e. tax concessions and legals), are they applicable to/for that position.

    1. martinusher Silver badge

      Re: Work Choices

      The IRS has had rules about programmers contracting out their labor for decades now -- if you work for one employer they regard you as employed for tax purposes. This rule came about because for a period in the 80s and early 90s it was a lot more lucrative for both employer and employee for the programmer to be paid as a contractor but that extra loot came at the expense of the taxman.

      I suspect the only reason why the IRS hasn't come for other 'contractors' is that they're not making enough money to be worth chasing down. (Says it all, really.)

      1. bombastic bob Silver badge
        Pint

        Re: Work Choices

        "for a period in the 80s and early 90s it was a lot more lucrative for both employer and employee for the programmer to be paid as a contractor but that extra loot came at the expense of the taxman."

        YOU, sir, deserve a BEER!

        This is NOTHING MORE than a clamp-down on contractors (in general), Gummint just wants our money. I'm glad you DARED to say it!

  4. a_yank_lurker Silver badge

    Common Sense Approach

    Horrors!!! A court decision that is common sense. Uber drivers and the like are really part-time employees not contractors. The problem that many like Uber having trying to do is skirt employment law worldwide by trying define the drivers as contractors.

    There is a situation where someone can be a contractor and not an employee. That is when the contractor is an employee rented from another company. There is a company taking care of the legal issues.

    1. Mark 85 Silver badge

      Re: Common Sense Approach

      The key result will be that Uber just has to make sure that the drivers don't put in more than 38 hours (in most states) a week. By doing that, the workers are all "part time" and thus, no benefits such as insurance, paid vacations, etc. The catch is that if the State is a "will at work" one which many if not all are. This throws a lot more fuel into the fire.

    2. Someone Else Silver badge

      Re: Common Law Approach

      11 tests. Back in the days of Section 1706 (brought...or should I say foisted upon us...by Ronald McDonald Reagan as a political favor to a well-connected body shop in Massachusetts providing contract workers to Lotus...remember them?), there were 20 common-law tests that were used to determine one's employee/contractor status. That the number shrunk to 11 over the years did in no way clarify the situation. The tests were intentionally vague, and often contradictory. At the end of the day, the question came down to control: Who controlled the work environment, the "worker" or the "boss". If the worker controlled it, the worker was a contractor, otherwise the worker was an employee.

      Looking at the ABC test, it's simpler...but not particularly iron-clad. Mainly, lawyer types can always make an argument that the "boss" always sets the rate of payment (even if negotiated between the "boss" and the "worker"; if the "boss" won't pay the "worker's" rate, and the worker must settle for the "boss's" rate, the "boss" is in control...QED), and therefore everyone is an employee. Not sure that's a reasonable outcome either, so some fine tuning is still needed.

      1. Anonymous Coward
        Anonymous Coward

        Re: Common Law Approach

        Well-connected MA body shop? Is that why Tip O'Neill pushed that?

        1. Someone Else Silver badge

          Re: Common Law Approach

          Actually, it was Patrick Moynahan that was the chief pusher sponsor

  5. AdamWill

    Do they have to be either?

    It sort of seems to me like this is difficult for the law (in many places, not just Super Cali) because the law is required to decide whether gig economy victims^H^H^H^H^H^H^Hworkers are employees or contractors. The law can't make up an Option C: it only has those choices.

    To me this is a bit of a problem because they're not *really* either. Of *course* they themselves would like to be considered employees (at least for the purposes of deciding how much they should get paid and whether they're entitled to protection from being arbitrarily fired and all the rest of it, if not necessarily when it comes to the question of their working hours). And of *course* the companies want them to be considered contractors, because that means the companies basically have zero responsibility to or for them whatsoever. But neither of these things seems to be what they, in actual fact, *are*, which is something in the middle. They're obviously not contractors in the traditional sense: no-one sets up as a Self-Employed Stuff Deliverer and then negotiates for Stuff Delivery Contracts with these companies. No. There's clearly a much more involved relationship going on. But it's clearly not *really* quite employment either; while they obviously deploy the argument cynically, the companies *do* have a point that they don't have as much control over the working circumstances of these workers as they would over those of a traditional "employee".

    So it seems like requiring the courts to resolve this dilemma is sort of setting them up to fail. What *ought* to happen is that legislatures should be drafting new legislation that covers *what these workers actually are* - whatever term they want to come up with for that - and addresses it specifically, with appropriate rules. It's not actually *necessary* for the state to declare these folks to be 'employees' in order to grant them appropriate protections - it could just pass a law that defines them as a group, gives that group a name, and grants appropriate rights and protections to that group. Done right, it could work out better than trying to twist the rules about employees to apply to them, even.

    1. Anonymous Coward
      Anonymous Coward

      the "third status" idea is dopey

      The idea that there are two sets of interests banging up against each other is inaccurate. Companies should blink first because individuals have very short time frames like needing to eat and pay bills at human scale, and not being able to do things like sit on their hands by underwriting an unprofitable unit with money from a profitable one. Preferential option for the poor. I don't trust the "dependent contractor," line of thinking, where someone says, we should design a third status. Not if it's going to be tongue in cheek and subject to lobbying by companies, which it will. You say "done right..." but it won't be. Err on the side of giving small-time humans more- we have the shorter timeframe relative to the imperative nature of our bills! And we are the ones who are subject to signing unfair agreements because of the need to do things on that timeframe, and then subsequently feel chilling effects and Stockholm syndromes towards our workplace, because we continue to need the work. That's why duress is a thing. "There is nothing so unequal as equality among unequals."

  6. FelixReg

    Looked at the other way

    A driver who uses Uber and Lyft both to get customers and to handle certain other administrivia is an employee of both Uber and Lyft?

    1. Sorry that handle is already taken. Silver badge

      Re: Looked at the other way

      Presumably.

    2. prof_peter

      Re: Looked at the other way

      Is someone who works part-time at Dunkin Donuts and part-time at Starbucks an employee of both? Of course.

      Is someone who works full-time for a company and skips out during the day to work a part-time job somewhere else an employee at both places? Yes, the fact that he's skipping out is an issue between employer 1 and their employee.

      Is someone who decides on a ride-by-ride basis whether to take an Uber passenger or a Lift passenger an employee of both? I think the appropriate answer is "yes, and if Uber and Lyft want to avoid both being on the hook for paying minimum wage, they'd better figure out a legal way to talk to each other about it."

      1. Claptrap314 Silver badge

        Re: Looked at the other way

        Yep. That will work great. Force the two dominate players in the market to coordinate actions.

        The thing is that during major events, Lyft & Uber are actively competing with each other for drivers. And the drivers have no requirement to take any particular ride. Furthermore, it has been reported here that Uber drivers have been gaming the system to drive down supply in order to trigger premium pricing.

        This does not look like company control to me.

        A bit of personal history. I failed out of college. (Long story.) As I was getting my act together, I ended up doing day labor mowing lawns. I accepted a rate below minimum wage. I was happy to do so, because I was literally competing with ten-year olds. I resent the Feds for saying that it was illegal for me to do so. I especially resent them for attempting to take 14% of my income "for my retirement" during a period that I was "food insecure".

        People are not forced to work for these companies.

        1. Anonymous Coward
          Anonymous Coward

          Re: Looked at the other way

          But without those minimum assurances, fiduciary sense would dictate a race to the bottom, back to the days of being paid in script and buying everything at the company store.

  7. Paul Hovnanian Silver badge

    What if ...

    ... I'd rather be a contractor?

    Obvious answer: Just make sure I have more than one customer. But that could hurt a good customer. What if they have a big push to get a job out and need my services full time for a number of months. And during that time, the gov't auditors stop by. It also puts me in the position that I may have to split my time between two competing customers. And they might not like that. 6 months on the Pentagon super secret radar contract. And then 6 months working on the Chinese system.

    1. Jim Mitchell

      Re: What if ...

      If you are happy being a contractor, your can structure your relationship with your "customer" in a way to pass these legal tests. Also, you're not likely to sue saying you really were a employee! Most people in the "gig economy" would probably rather have a real job and not be a contractor.

    2. Pascal Monett Silver badge

      Re: What if ...

      I'm pretty sure that, if you work on a Pentagon contract of any type, you are not going to work on a Chinese system after that.

      Ever.

      1. Anonymous Coward
        Anonymous Coward

        Re: What if ...

        That's going to be more and more difficult as the Chinese buy up everything they can.

      2. Paul Hovnanian Silver badge

        Re: What if ...

        "you are not going to work on a Chinese system after that."

        What makes you think the Pentagon was my first customer?

        1. Pascal Monett Silver badge

          Re: What makes you think the Pentagon was my first customer?

          Um, the fact that that is what you wrote ?

    3. bombastic bob Silver badge
      Devil

      Re: What if ...

      form an LLC. it means paying extra money, though, and filing separate tax returns, setting up a payroll service, yotta yotta yotta. _I_ think it's worth doing, because it puts you more in control and has other benefits.

  8. Marketing Hack Silver badge
    Thumb Up

    I'm glad...

    Enough of these gig-economy companies watering down employment rights so that they can try to keep their poorly modeled businesses afloat. If your work is central to the company in question, you should have the right to be an employee or a contractor, depending on whether you prefer more stability or more flexibility.

    1. eldakka Silver badge

      Re: I'm glad...

      > Enough of these gig-economy companies watering down employment rights

      I don't think it started with them.

      Here there are many large companies that in the 70's and 80's had like 80+% full-time employees and 20% casuals (or contractors), but in the 90's and going forwards that's been flipped around.

      Mining companies, supermarket chains, retail chains, all that have been around for decades if not a century or more, have converted many employees over to casuals or contractors, some with as little as 10% full-time employees across work-forces that are nominally (since it's hard to tell since they have so many 25-hour a week casuals or contractors who are not employees therefore don't count...) tens or hundreds of thousands strong.

      I think a lot of it has to do with taxation and tax laws, and things like superannuation.

      The gig-economy has followed the already set precedent by these established companies. But now they can start out with a dodgy business strategy that requires this paradigm from the start.

      1. Anonymous Coward
        Anonymous Coward

        Re: I'm glad...

        I've been told that only 10% of Cisco's workforce are employees. The other 90% are contractors.

        Furthermore they only allow you to be a contractor for 2 or 3 years, after that, if you're not converted to an employee, your contract isn't renewed.

        1. Marketing Hack Silver badge
          Headmaster

          Re: I'm glad...

          I worked for Cisco as a contractor, its definitely not 90% contractors, at least not in the professional positions. I'm sure they outsource all their production to Foxconn and other contract manufacturing firms, and how many of their people who are building Cisco gear are actual employees, I cannot say.

          But at the Cisco HQ campus in North San Jose, it is about 80%-90% employees and 10%-20% contractors.

  9. EveryTime

    I would rather see the rules change to gradually require benefits, with an explicit trade-off between minimum wage and hours. That would dissuade companies from having 80% of their workers be part time or contractors in order to pay minimum wage with no benefits. It's absurd for a store to have 100 part-time employees when most would prefer full time work with benefits.

    1. Anonymous Coward
      Anonymous Coward

      "It's absurd for a store to have 100 part-time employees when most would prefer full time work with benefits."

      But if it costs more to have fewer full-time employees than more part-time employees, business sense dictates the latter. The only way you can change the math is if there is a place for dissatisfied employees to defect, but if ALL employers in a given industry are doing the same or worse, it's what's called a captive market. You either work part-time with no benefits...or starve.

      1. rskurat

        implicit price-fixing

        When companies fix prices or collude to set wages (explicitly) they're usually caught, eventually. But when Wall St or The City runs the show, the race to the bottom begins. And at the bottom is the captive market in labor. In my area there's a closely held supermarket chain that has low employee turnover, low prices, and hasn't posted a loss in 40 years.

        There are several different "business senses," and the ones that consider intangibles (morale, customer loyalty, etc) are better. But they won't get a Fund Manager a bigger bonus and he doesn't actually care about the business at all.

        1. Charles 9 Silver badge

          Re: implicit price-fixing

          And odds are that chain's soon gonna get an offer it can't refuse. Because if it refuses, the likes of Walmart will enter the market and start undercutting. Story of a lot of small towns in America, I assure you. Where I live, one of Supervalu's labels, a local stalwart for decades, is on the way out even as I speak, so I'm speaking from firsthand accounts.

  10. Wiltshire
    Joke

    It's good to see that the UK plc is leading the world once again (irony icon).

    We've had IR35 for how many years now?

    Once upon a time, almost solely used to bash IT contractors, now being used to bash more deserving folk. Like locum GP doctors and all the people the BBC pushed onto contracts.

    1. TrumpSlurp the Troll Silver badge

      IR35

      Originally intended, IIRC, to target cheap bulk labour like casual building site labour and cleaning firms.

      However enforcement was hard, and then someone noticed that IT contractors coulf be considered to fall within the legislation as well.

      Nice target market with high earning individuals who weren't likely to skip around as much and who already paid at least some taxes. So low hanging fruit. The rest is history.

  11. Jr, 4242
    Facepalm

    KISS Keep it simple stupid!

    Eliminate independent contracts. If someone does work for a company, unless truly self employed or is employed by a third party, then they are employees of that company. Under this model, everyone is either self employed or employed, but in one way or the other, they are either owner of a company* or employed. No one is contracted.

    Everybody knows why these companies use the independent contract model, to dodge responsibility. If a company can't make it using the employee model, they don't deserve to make it. There's no need for this to be so complicated that even the courts seem to have trouble figuring it out, especially when the fix is so easy.

    *I do not consider an Uber driver as being an owner of a company because of Uber's rhetoric about Uber drivers being their 'own boss' and 'working for themselves', or being their 'partners'. All complete BS.

    1. Anonymous Coward
      Anonymous Coward

      Re: KISS Keep it simple stupid!

      Well, what if someone works for more than one company, particularly rival companies, and HAVE to do it to make ends meet due to the cost of living and so on (Hint: Many Uber drivers are Lyft drivers, too)? By making standards as tight as you describe, employers can institute a "no moonlighting" clause which puts starving employees in a bind.

  12. DougS Silver badge

    I don't see how this affects Uber/Lyft

    Assuming that all three factors in the "ABC" test must be satisfied, the fact that drivers have 100% control over when they choose to work would seem to have them remain contractors.

    1. ecofeco Silver badge

      Re: I don't see how this affects Uber/Lyft

      Ah but they really don't. If they turn down too many calls, their status/ranking goes down. Nor can they charge anything other than what the company says they can charge.

      That last is the very definition of NOT being a contractor.

      1. DougS Silver badge

        Re: I don't see how this affects Uber/Lyft

        They have to be logged in to the app as "working" to be able to accept or reject calls. The company setting the rate is only one of the three ABC tests, they still have complete control over when they work.

        The fact they are able to accept or reject calls is a level of autonomy hardly any employees have. If you work at McDonalds and your boss tells you to clean the fryer or empty the trash, you can't refuse to do it - at least not if you want to keep your job.

        I'd argue the ability to reject work you don't want to do is further evidence they are not employees. That Uber has a rating system that hurts those who are overly picky is not surprising, since they need some way to encourage drivers to be willing to pick up ALL customers not sit around waiting for the ones they can infer are more likely to be generous like pickups on Wall Street or Rodeo Drive.

  13. Anonymous Coward
    Anonymous Coward

    Employee to Contractor

    I work for a big data base company and I wanted the flexibility of being a contractor as more than a few of my colleagues are.

    When I explored quitting and coming back as a contractor, which my manager was okay with, the legal department said no, you can't do that because people who were fired from HP and hired back as contractors sued HP.

    I am very sympathetic to the "gig" employees who want to be "real" employees, but I do see a lot of cars with both Uber and Lyft stickers on them, so there may need to be a middle ground.....

    1. hellwig Silver badge

      Re: Employee to Contractor

      There may be cars with both Uber and Lyft stickers, but I think the drivers would have good evidence to show Uber was essentially driving them to exclusivity with Uber.

      Uber has done illegal things to make Lyft driver's lives hell, including encouraging employees to reserve Lyft drives and then cancel them. If Uber is messing with Lyft's business to prevent people from driving for them, that doesn't help Uber's case.

  14. hellwig Silver badge

    No Mention of Gentlemen's Clubs

    Different from UK clubs, we're talking the ones with naughty bits here in the US.

    For ages these (mostly) ladies have complained that they are being treated unfairly as independent contractors. But it seems they may be lifted by this decision. The clubs dictate schedules for the dancers and dictate prices for performances (dances and private sessions). Technically I don't think they are restricted to only working for one club, so there's not necessarily exclusivity, unless all the clubs in an area are owned by one company.

    I know this situation is making news in New York if not other places as well.

  15. vtcodger Silver badge

    More complicated in the US

    The situation is complex everywhere of course, but it's worse here in the US because our largely dysfunctional and extraordinarily expensive "healthcare" "system" is based on insurance purchased by employers. In concept independent contractors excepting a few older folks covered by Medicare or younger folks somehow on their parent's policies take care of their own health insurance -- although in reality few can afford it

    If Uber and Lyft have to purchase health insurance for their drivers it's going to cost them big bucks.

    1. bombastic bob Silver badge
      Megaphone

      Re: More complicated in the US

      "although in reality few can afford it"

      I know, it's been a HARDSHIP since Obaka-care took over a huge slice of the economy, and I haven't purchased ANY insurance because of it. I don't want it anyway. but it's a HARDSHIP, and I've said so on every tax form since that became a requirement to crawl out from underneath that STUPIDITY. Because, it IS a hardship. $1000/month, typically. I'd rather NOT have to move into a GHETTO and live on rice+beans to compensate.

      Good thing the "individual mandate" (an UNCONSTITUTIONAL provision that should have NEVER happened) is GONE now.

      If I need a doctor, I'll go to a clinic of my choice and pay cash. There's one 1/2 a mile from my house, next to a dentist office.

      1. Anonymous Coward
        Anonymous Coward

        Re: More complicated in the US

        Until something comes along that will be VERY expensive (say a major organ transplant, easily in the millions, even with cash). Do you just give up, then?

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