The gig economy companies were dealt a blow Monday (April 30) after the Supreme Court in California ruled that gig economy companies can’t count workers as independent contractors instead of employees.
The New York Times, citing the court ruling, reported the judgment could pave the way for companies that are based in California such as Uber to adhere to the minimum wage and overtime laws in the state and to pay the workers’ compensation and unemployment insurance of their employees. They would also have to pay payroll taxes, all of which could change their business models. The New York Times noted that industry executives have calculated that classifying gig workers as employees would cost 20 percent to 30 percent more. But the companies would also get the benefit of being able to better control the schedules of its workers and how they work. “It’s a massive thing — definitely a game-changer that will force everyone to take a fresh look at the whole issue,” Richard Meneghello, a co-chairman of the gig-economy practice group at law firm Fisher Phillips, told The New York Times.
According to the report, with the ruling, the California Supreme Court got rid of the existing test to determine if a worker is an employee or contractor and put in place a less complicated test — a worker is considered an employee if the person performs a job that is part of the normal course of the business. In the past, the test included ten factors such as how much supervision a worker has and whether or not he or she could be fired without cause. The paper noted that based on the court ruling, a plumber who is hired to fix a bathroom sink wouldn't be an employee of the store he or she is fixing the leak in, but the seamstress who works at home but uses a company’s materials to make clothing for it would be considered an employee, noted the paper. In order to count the person as a contractor, the company has to demonstrate how it doesn’t exert control or direction over the worker. With the new rule, it would be difficult for Uber to argue that it drivers’ work isn’t part of the normal course of business at the ride-hailing app company. The NYT noted that the case that resulted in the ruling Monday (April 30) was brought by Dynamex delivery drivers who had been considered employees prior to 2004. At that point, the company changed how it classified delivery employees.