Huge California Supreme Court Ruling Upsets “Gig Work” Model

The most important state supreme court ruled on Monday that “gig work” will be analyzed under a new test that will result in more findings that gig workers are employees, and not independent contractors. 

For my current students, recall that California relies on the 10-part Borello test to determine if a worker is an employee or an independent contractor. The court abandoned that test. It’s now using an “ABC” test—a three part test—that deemphasizes whether the firm controls work and asks whether the work is indispensable to the business (if so, the worker is an employee).

Uber and so many firms that now adopt the gig model let workers pick their schedules. Often, the firm uses a phone app and serves as a broker that brings a worker and customer together for a “gig”— a ride to the airport, delivering food to your food or office, maid service and the like. 

Under the Borello test, employer control of work was the most important factor. Firms like Uber took advantage of this by emphasizing that drivers pick their times, locations, and type of vehicle plus service level to pick up riders.

Under the ABC test, the main question is now whether a job that is part of the “usual course” of the company’s business. Uber without drivers is—well, nothing—and therefore their drivers will be employees.

This will certainly raise costs for Uber. Like traditional employers, they’ll be required to pay their 7.65% share of Social security and Medicare taxes; their share of unemployment insurance taxes; and their share of ACA health insurance.

If their drivers sexually assault a passenger—as is now claimed by more than 100 putative victims in the U.S.—they’ll be potentially liable under an agency theory that applies to traditional employers (the theory is respondeat superior, meaning the principal answers for the torts of the agent).

One aspect that goes under radar is what this means for regular employers. Take just the Social Security tax part. The 6.2% rate has been constant for many years. What has quietly changed is that the amount of income subject to the tax has grown from about $70,000 to the 2018 figure of about $127,000. That is a sneaky but highly consequential tax increase. The good news is that for regular employers in California (and this includes many technology giants, such as Apple and Google), gig employers will eventually be required to pay their fair share of employment related taxes.

For gig workers, it means that they’ll be eligible for minimum wages and overtime pay; rest breaks; laws that protect them from discrimination; worker’s compensation if they are injured on the job; reimbursement for expenses related to use of their cars and vans; health insurance benefits—the list goes on. But it’s also hard to see Uber sticking around to bear these new costs. Over time, they might withdraw from this immense market. They could build up their presence in places such as Iowa; but more likely, they’ll become more focused on international markets with huge populations and far less regulation.