How Two Court Decisions Could Mean Gig Is Up for Many Companies that Call Their Workers Independent Contractors

In the past two weeks, two separate court decisions have presented two pathways for states to establish labor standards and a voice at work for workers classified by their employers as “independent contractors.”

First, the CA Supreme Court, in Dynamex v. Superior Court of Los Angeles adopted the so-called ABC test as a way to interpret which workers are covered under the state’s wage and hour law. The decision sets up a generous standard determining who is an employee, including a presumption that workers are employees unless certain criteria is met. Scores of workers in industries ranging from construction to janitorial, homecare and delivery, as well as Uber drivers and other workers in the on-demand economy, will, under the test, clearly be “employees.”

Scores of workers in industries ranging from construction to janitorial, homecare and delivery, as well as Uber drivers and other workers in the on-demand economy, will, under the test, clearly be “employees.”

Statutes that most effectively address the issue could include language like the following:

“Employee” means any individual employed by an employer. An individual performing labor for an entity is presumed to be the employee of that entity, unless it is shown by a preponderance of the evidence that:

(A) The individual is and will continue to be free from control or direction over the performance of the labor or services by the party for whom the labor or services are performed, both under the contract of labor or service and in fact. Control or direction includes the right to control or direct as well as general control or direction over the individual’s physical activities; and

(B) The labor or service provided by the individual is outside the regular course of operations of the entity; and 

(C) The individual is engaged in an independently established business, for which she independently establishes the price of her labor.

More than half of the states use some variation of the ABC test in their unemployment insurance laws, and the states of Massachusetts and New Jersey use the test in their wage and hour laws as well. The state of Nebraska adds the following language to its test, meant to ensure that judges don’t confuse the test with the more restrictive common law, IRS or other tests:

“The provisions of this subdivision are not intended to be a codification of the common law and shall be considered complete as written.”

In order to ensure that the test for joint employment is also the ABC test, states could use language like the following: “Employer” means any individual, partnership, association, corporation, business trust, or any entity, person or group of persons, or a successor thereof, that employs another person and includes any such entity or person acting directly or indirectly in the interest of an employer in relation to an employee.

In a second legal development, states are now free to adopt expansive collective bargaining for sectors in which companies routinely label their workers independent contractors. This is because last week the 9^th Circuit Court of Appeals handed down a decision holding in part that the 2015 Seattle collective bargaining ordinance for transportation network companies (TNC’s) and taxi drivers was preempted by the Sherman Antitrust Act, in Chamber of Commerce v. Seattle. But the court’s second holding is just as important and far more favorable. It held that the National Labor Relations Act does not preempt state-level action when it comes to establishing collective bargaining for independent contractors. A state could, therefore, adopt an expansive collective bargaining law, like the one Seattle adopted, for workers who have been classified by their employers as independent contractors.  States could also give additional authority to cities to establish collective bargaining at that level.

State legislature already had the ability to establish coverage under certain specific laws—unemployment insurance, workers’ compensation, minimum wage, etc.—just by declaring that certain workers are covered under those laws, a policy tool known as “statutory employment.” The two policies could be used in combination to establish minimum standards and a process for collective bargaining.

The Seattle ordinance applies to TNC’s, but the collective bargaining process it lays out could be used in other contexts at the state level. The process it lays out is that a workers’ organization wishing to represent drivers must be approved by the city. Companies then disclose contact information of certain qualifying drivers, who are contacted by the workers’ organization. After it has reached a majority of workers wishing to be represented, bargaining begins. Once an agreement is reached, it is approved by a city agency. If agreement is not reached, there is a provision for arbitration in order for the parties to get to a contract.

Other organizing models exist for those excluded from the NLRA: In the California Agricultural Labor Relations Act and the various state laws that provide a process for collective bargaining for homecare workers and public employees. The Seattle ordinance explicitly does not apply to workers who are employees under the NLRA.

With these two decisions, it seems the gig may be up for many companies that call their workers independent contractors and escape compliance with labor standards and requirements to negotiate with workers over terms and conditions of employment.

With these two decisions, it seems the gig may be up for many companies that call their workers independent contractors and escape compliance with labor standards and requirements to negotiate with workers over terms and conditions of employment. One way or another, states and cities can establish clear labor standards for these workers and ensure that they have a voice at work.