A California Supreme Court ruling that would limit businesses from classifying workers as independent contractors who are not eligible for certain benefits and employment protections has just been rendered.
The recent ruling in a case involving package delivery drivers adopted a broad definition for those who qualify as employees. The court put the burden on California employers to prove a worker is an independent contractor. To do so, the company would have to pass each part of a three part test to prove a worker is an independent contractor:
1. The worker is free of control
2. The worker is free of direction
3. The work is outside the course of business for which the work is performed
How much Impact will this ruling have for independent contractors? The ruling is specific only to California, but it mirrors employment standards already adopted in Massachusetts and New Jersey. Its impact in California will depend on how many workers decide to challenge their employment status.
To have the ruling apply, workers will have to go to court or arbitration to press their cases. Only those who claim they aren’t making minimum wage or are being deprived overtime or other benefits would file legal cases. This ruling makes it easier for those workers to prove their cases.
Other states could adopt a similar approach to determine who is an employee. Does this mean that companies like Uber will have to treat their workers as regular employees and not independent contractors? It could be a while before that happens. There have been other recent court decisions that have gone in the other direction.
A federal court in Philadelphia recently ruled that limousine drivers for Uber’s UberBLACK service are independent contractors. Courts in the United Kingdom recently ruled that Uber drivers are employees. At the moment there is still a lot of confusion over the matter.
Presently, in California, the ruling appears to favor Uber drivers challenging their employment status. There, it will be difficult for companies to classify their workforce as independent contractors.
What is the current estimated size of the gig economy at this time?
The number of people working outside traditional, permanent jobs has grown sharply in the past decade. It is estimated by economists that the percentage of workers in alternative work arrangements is near 16%.
What is driving the increase in these temp work arrangements?
- Corporations are trying to cut costs.
- Businesses don’t have to pay for health insurance or other benefits for independent contractors.
- Also, they do not have to cover Social Security or unemployment insurance taxes and they are not subject to minimum wage laws or overtime rules.
- Many people enjoy the flexibility of gig work.
- They are typically older, better educated professionals who work on professional projects.
One thing is certain, more change is on the way.