Employees, contractors and the gig economy

Carl Kanowsky
Carl Kanowsky

So, Terry and I were in San Francisco over the weekend to, what else, taste wine. Knowing that we would be imbibing, I decided to use Lyft rather than driving on the way back and forth to our hotel in Brisbane.

There’s been a lot of controversy about how both Lyft and Uber treat their drivers and those companies’ potential liability for the acts of those same drivers. Both Lyft and Uber have classified their drivers as independent contractors and not employees.

The rationale is obvious. If the driver is a contractor, then the company doesn’t have to worry about bothersome issues like Workers Compensation, health insurance coverage, collective bargaining problems, employer-portion of the employment tax, wrongful termination lawsuits, wage and hour compliance, and a whole host of other challenges.

From the driver’s point of view, there is no withholding of taxes and maybe a basis for deducting from their taxes things like the cost of their car.

Seems like a win-win, right? But not everyone agrees with this structure.

This is a dilemma facing hundreds of thousands if not millions of people. Recently, a federal San Francisco court wrote, “Under California law whether an individual performing services for another is an employee or an independent contractor is an all-or-nothing proposition. If Mr. Lawson is an employee, he has rights to minimum wage, overtime, expense reimbursement and workers compensation benefits. If he is not, he gets none. With the advent of the gig economy, and the creation of a low wage workforce performing low skill but highly flexible episodic jobs, the legislature may want to address this stark dichotomy.” Judge Corley in the Lawson v Grubhub matter.

What is the “gig economy?” I used to think it had something to with electronic stuff, like gigabit, or gigabyte, or giga-whatever. But, no, it’s more entertainment-related, like a musician saying that she has a “gig” tonight. In other words, a one-time or short-term engagement to perform.

Gig economy is essentially this. WhatIs.com defines it, “A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements.”

Grubhub, according the decision in the Lawson matter, deals with this question. Lawson had been a driver for Grubhub for four months. He sued Grubhub, saying he should have been treated as an employee and not an independent contractor.

According to Grubhub, the driver is a contractor who has agreed to perform this one service – delivering food to this one customer. The driver has the option, on any given day or night, to accept or reject driving assignments. So, each delivery is, in and of itself, a “gig.”

Given the great freedom the drivers have to accept or reject gigs, to determine when and how to handle deliveries (a driver can use his bicycle, if he likes), to deliver for Grubhub’s competitors, and another of other factors, Judge Corley ruled that Lawson was an independent contractor.

In coming to this conclusion, Judge Corley relied heavily on the 1989 California Supreme Court case, Borello. In determining whether a worker was an employee under workers compensation law, the Borello Court enumerated many facets that needed to be reviewed. Overall, the overriding consideration was, “How much control does the company have over the worker?” The more control exerted by the company, the more it looked like an employment relationship.

This was the standard used for decades in judging similar employment questions.

Then in 2010, the Supreme Court in Martinez used the definition of employ, “to engage, suffer, or permit to work,” to assess whether some people who worked for a company were its contractors or employees. The tests in Borello were found to be unnecessary to resolve that case. The general consensus is that using the Martinez test will find an employment relationship more often than the Borello factors.

Now, pending before this same Supreme Court, is Dynamex v Superior Court. The question that may be decided is what test is to be used to determine if a worker is an employee or an independent contractor: Borello’s control test or Martinez’ engage, suffer, or permit to work test. The court’s decision can have far-reaching implications for the gig economy.

Carl J. Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at [email protected]. Mr. Kanowsky’s column represents his own views, not necessarily those of The Signal. Nothing contained herein shall be or intended to be construed as providing legal advice.

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