This month, the California Supreme Court challenged the entire gig economy’s business model, ruling that a contractor must be classified as an employee if they do jobs that are part of the “usual course” of the company’s business.
It used the example of hiring a plumber versus a seamstress to illustrate its new test.
“When a retail store hires an outside plumber to repair a leak in a bathroom on its premises… the services of the plumber…are not part of the store’s usual course of business,” the ruling stated. “On the other hand, when a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company … the workers are part of the hiring entity’s usual business operation.”
Plumbers are contractors who are not part of your regular day-to-day operations. Meanwhile, a seamstress, whose work you rely on to make sales, should be an employee.
California: contractors must be employees if they are part of ‘usual course’ of business
If the contractors are core features of a company’s business, in other words, they must be considered employees.
This ruling could be a punishing blow to technology companies that rely on third-party contractors. Under the typical gig economy business model, independent contractors are free to be their own boss, driving cars for Uber and Lyft and delivering food for GrubHub on their own time. But that freedom comes at the cost of losing the benefits and protections that full-time employees have. Business models like Uber and its ilk depend on this arrangement to save on costs. Research has found that contractors cost companies around 25 percent less in costs, compared to a full-time employee.
For now, the ruling only affects workers in the state of California, so if you are an Uber driver in New York City, the ruling does not yet apply. But overall, the ruling provides a roadmap for other Silicon Valley contractors on how they can gain legal protection and fight back against companies classifying them as contractors.
This Monday, for example, lawyers for a GrubHub worker in California are asking a judge to reconsider a previous ruling based on the California high court’s new test. In the previous ruling, Raef Lawson was not considered a GrubHub employee because the company did not control how he made his deliveries.
But under the new test, this could change. Lawson’s lawyers told Reuters that Lawson is entitled to be classified as an employee with an employee’s overtime benefits because his delivery work was vital to GrubHub’s business operations.