How is Dynamex affecting gig economy employers?

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As we reported last year, the Dynamex v. Superior Court case “radically modified the test for determining whether someone working for a business is an employee or independent contractor.” Under the new “ABC” test, the burden is on the business to prove (A) it cannot control or direct the worker by contract or in practice, (B) the worker performs tasks outside of the usual business, and (C) the worker is engaged in an independently-established trade, occupation or business.

Early indications are that leading gig economy employers remain unsure how to resolve treatment of individuals who do not neatly fit the traditional definition of either employee or independent contractor. Uber, for example, provides a platform for drivers and passengers. Multi-year litigation over drivers’ status has not yielded a clear result over whether they should be employees or independently contractors. In a settlement approved March 21, 2019 in O’Connor et al v. Uber Technologies, Inc., Uber agreed to pay $20,000,000 to a class of 13,600 drivers (who had not signed arbitration agreements). Their suit claimed, mainly, that they were misclassified. Frustratingly for employers looking for guidance, the O’Connor settlement does not require reclassification, and so it does not resolve the question, nor has similar litigation over Lyft drivers.

Why did the parties (and the court) punt on the classification question? Several reasons, all stemming from the fact that Dynamex leaves unanswered questions. For example, it’s not clear what has to be proven under Prong B of the ABC test (a similar question is being argued in Lawson v. Grubhub, on appeal to the Ninth Circuit). One case (Garcia v. Border Transp. Group) has ruled that the ABC test does not apply to expense reimbursement claims at all. Also unclear is whether Dynamex applies retroactively. The parties also cited efforts in Sacramento to lobby the Legislature for a new law that would reverse Dynamex and reinstate prior rules. Additionally, Uber in particular, and the gig economy in general, are so popular in places like San Francisco that the plaintiffs feared a jury might not rule in their favor for fear of putting Uber and other gig employers out of business.

What should employers do while courts, juries, and maybe the Legislature try to figure out their next moves? The safer course is usually to classify a “tweener” as an employee, particularly if the employee provides the service or makes the product that you as an employer provide to your customers. This is because the risks of getting the classification wrong can be staggering. If you are not treating an individual as an employee, you are not closely tracking start and end times, you are not at all focused on meal or rest breaks, you are not paying overtime, you are not reimbursing for expenses (other than by contract), you are not providing anti-harassment training, you are not covering the individual with your workers’ compensation insurance, and you are simply not controlling the person’s work in ways that you might wish to control in order to limit liability to others. The costs of treating someone as an employee, which may include payroll taxes, provision of benefits, paid time off, and sick time, are genuine, but can be measured, controlled, and factored into planning. Liability for misclassification, especially for a group of employees, can spiral out of control, especially in an era where Private Attorney General Act (“PAGA”) claims cannot be forced into arbitration and can seek recover for many people at once.

If you are still in doubt, you can call an experienced labor and employment attorney to evaluate all factors and help you make the final decision.