Coppelman: Is the Gig Up in CA?

The rise of the gig economy calls into question the fundamental nature of employment. Over the past 100 years, people who work for others (“employees”) have accrued a formidable array of benefits, ranging from fair labor standards and workers’ comp, to Social Security and unemployment insurance, from health and wellness benefits to 401ks. (In prior generations some lucky workers accrued guaranteed pensions, but these have gone in the way of the carbon copy.) The cost of all these benefits is substantial, adding roughly 35 percent to an employer’s payroll.

So if you can figure out a way to get the work done without hiring employees — and without paying benefits — you can save a lot of money. Hence the evolution of the gig economy and its web based platforms, where “independent contractors” perform the actual work. On the plus side, the folks who perform the tasks — driving people around, delivering packages, fixing up homes, etc. — work when they want, for as long as they want. On the debit side, there are no assured levels of income and no benefits. In the gig economy, you better not fall, because the safety net no longer exists.

Enter the Supremes

Because every aspect of employment is encased in law, the courts have much to say about the status of workers in the new economy. The California Supreme Court recently ruled on a case involving Dynamex,  a nationwide, same-day courier and delivery service that operates a number of business centers in California. (WorkersCompensation.com reporter Liz Carey recently wrote about this case.) In 2004 Dynamex ceased classifying their drivers as employees and began calling them independent contractors. The drivers are required to provide their own vehicles and pay for all expenses, including fuel, tolls, maintenance and insurance. They are expected to wear Dynamex shirts and badges and at times attach Dynamex decals to their vehicles.

A class action lawsuit was filed by a subset of Dynamex drivers: The class excluded those who hired other drivers or who operated independent delivery businesses. The lawsuit focused solely on California wage law, thus excluding any specific references to work comp.

Nonetheless, the implications for workers’ comp are enormous, as illustrated in a recent post by my fellow Experts View columnist Peter Rousmaniere and by my own post last month.

Drawing from examples in Massachusetts and New Jersey, the Court established a deceptively simple, three-pronged criteria to determine the independence of workers:

Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?

Part B: Does the worker perform work that is outside the usual course of the hiring entity’s business?

Part C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?

Dynamex hits the trifecta, likely failing in all three criteria. The company exists only to deliver packages, so for members of the designated class, the “independent contractor” label cannot apply.

Gig Down but Not Out

Consider for a moment the implications of this ruling for the avatars of the gig economy: Uber and Lyft. While these two successful companies claim to be nothing more than web-based platforms, they cannot exist without their “independent contractor” drivers. The California Supreme Court has challenged the core framework of the gig business model and in doing so, has set up a confrontation of epic proportions: Will the long-standing, hard-earned benefits of conventional employment continue, or will they gradually disappear as gig businesses fragment the workforce down to the individual level? Safety net at work or the ambiguous freedom of the micro-entrepreneur? For sure, we live in interesting times!

ABOUT THE AUTHOR:

Since 1990 Jon Coppelman has trained thousands of business owners from Main Street to Fortune 500 on the fundamentals of workers’ compensation cost control. From 2006 to 2012 he was a principal writer for the Workers’ Comp Insider, LynchRyan’s first-in-the-nation blog dedicated to risk management issues. He currently divides his time between his consulting businesses and his role as Senior Workers’ Compensation Consultant for the Renaissance Alliance, an aggregator based in Wellesley, MA serving more than 90 local agencies across New England.

Share This Article: