Tom discusses where we’ve been, who is affected and where we may or may not be going with the legal issues surrounding the Gig Economy.
Featuring Tom Merritt.
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Episode Script
You’ve heard of the gig economy
It means folks can pick up extra work and make a little extra money easily right?
Or wait, does it mean big tech companies get to exploit desperate unemployed people to pay them a pittance with no benefits or workplace protections?
Also somehow the laws on what’s a gig worker and what isn’t seems to only apply to everyone BUT Uber drivers?
Are you confused?
Don’t be.
Let’s help you Know a Little more about the Gig Economy
The gig economy refers to the idea that you and I can take gigs, get paid for them and move on to the next gig without having to sign on to a full time job. The benefits are usually touted as flexibility and being your own boss. It’s often pitched as a side job to make a little extra money. The downside is that gigs don’t provide any of the protections that a full time job would, like minimum wage, workers compensation, insurance, 401k and most notably for state governments, payroll tax.
Taking gigs is not new. Musicians, accountants, construction workers all essentially operate in the gig economy. And states have had rules for a long time to accommodate that.
The issue that these rules address is whether someone is truly a freelancer taking advantage of the freedom to pursue their own gigs, or if the person is actually a full time employee but their employer calls them a freelancer to avoid paying minimum wage, payroll tax and providing benefits like insurance.
Then came Uber, and Uber-like companies.
In an old internet story, the old rules didn’t quite fit well with the new internet-driven business. And California has led the way in trying to adapt its rules to the gig economy with a law known as AB5.
Let’s work through what the old rules were, what the new rules are and what Uber, Lyft and others want to change them to.
We start by taking you back to 1989 and the birth of something called the Borello test which would last for decades as the standard to judge if someone was a full time employee or a contractor.
That test came out of a case called S. G. Borello & Sons, Inc. v. Department of Industrial Relations. At issue was whether people hired to harvest cucumbers were independent contractors exempt from workers compensation or not.
The decision resulted in a simple 11-part test.
Court’s would examine all 11 parts and come to a conclusion based on how many were met. No single factor was most important. It was a judgement call. Hence you needed judges.
The first two parts of Borello were given special emphasis though. Whether the person performing the work was in a business separate from the company hiring them and whether the work itself was part of the hiring company’s main business. An accountant hired as a contractor could be considered distinct, a person picking cucumbers for a cucumber farm? Maybe not as much. With Uber the company argued their business wasn’t providing rides but merely connecting drivers with riders. Remember that argument.
The other 9 parts of Borello included whether the company provided tools and supplies for the worker, whether the worker owned their own equipment or materials, what skill was required to do the work, whether the work was done under the company’s supervision or direction and whether the profit a worker made depended on their own managerial skill. The other parts related to how long the worker performed the service for the company. Were they always working for this company or did they move around to multiple companies. Whether they got paid by the job or by the amount of time worked. And whether both parties saw the relationship as contractor and client or employee – employer.
Simple right? It led to shortcuts, some based on subsequent court cases, like you couldn’t keep a contractor working for you for more than a year, or a worker had to show they had multiple clients. I personally have had to show I invoiced other media outlets in order to be considered an independent contractor for companies I’ve done videos or articles for.
Now these rules are just for California, but a lot of other jurisdictions looked to Borello as a model in their own cases.
So along comes Uber– and others like it like Lyft or DoorDash but Uber got all the attention. Under Borello, Uber was able to classify its drivers as independent contractors because not only did it claim it didn’t provide the rides, only the connection platform, but it didn’t set hours, it didn’t provide the cars, and it didn’t in its opinion directly supervise the drivers, just told them where the riders wanted to go.
Well the legal guns came out for Uber from disgruntled drivers who felt taken advantage of, labor unions who also felt the drivers were taken advantage of and competing businesses like taxi companies who didn’t benefit from the gig economy the way Uber did.
After many legal wranglings Borello was changed on April 30, 2018 when the California Supreme Court issued a decision in a case called Dynamex Operations West, Inc. v. Superior Court. This decision resulted in something called the ABC test. A simplified and stricter version of Borello.
The case itself involved drivers for a same-day delivery company called Dynamex. Before 2004, Dynamex classified its drivers as employees and paid them minimum wage, insurance etc. That ended up being fatal to their case by the way.
In 2004, Dynamex changed that classifying drivers as independent contractors. Drivers were allowed to set their own schedule with advance notice. Drivers could reject delivery requests and drivers were paid by type of delivery not by the hour. Drivers also had to buy their own trucks, gas, and pay for maintenance and insurance. Saves Dynamex money and satisfies a Borello condition. Dynamex were also required drivers to buy a Nextel phone to talk to dispatchers and buy uniforms to wear during Dynamex deliveries.
The court found for the drivers and created the ABC Test in its opinion.
The court determined that a worker should be presumed an employee unless the hiring business could show all three of the following factors were met. Remember Borello was just 11 test to help a decision. ABC was stricter. You were an employee unless you could satisfy all three tests.
Here they are:
A. That the worker is free from the control and direction of the hiring entity.
In other words, I tell you what I want done and you go do it on your own time in your own location with your own tools and I only care if it’s done. This works for accountants. Here’s my info go do my books. Not so much for cucumbers. I need you to pick these cucumbers… right here on my land… Uber? Give this person a ride. Enjoy! Maybe?
Test B. That the worker performs work that is outside the usual course of the hiring entity’s business. This is similar to the main factor in Borello. If I’m a cucumber farmer it’s hard to say that pickling cucumbers is not part of my core business. BUt if I make an app for connecting people. *I* don’t give rides. YOU do. Right?
Final test C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
This is why I had to show invoices that I had other clients. I do this thing for a living. I’m not just taking this job and no others. Maybe cucumber pickers could show this? Uber drivers are certainly allowed to drive for Lyft, DoorDash and others.
Anyway, Unlike Borello this test was iron clad. You had to meet all three or you weren’t an independent contractor.
Now the Dynamex decision came down in April 2018. And it was questionable how other courts might apply it given some legal nuance in the case. So by December 3, 2018, Assemblywoman Lorena Gonzalez introduced Assembly Bill 5—or “AB5” that would clarify the ABC test and make it a law. This would make it harder to tie up cases in court arguing exceptions. AB5 was signed into law September 18, 2019 and went into effect January 1, 2020.
One of the clarification was who AB5 would apply to. The Legislature or the Industrial Welfare Commission could make exceptions and either define specific rules or apply the Borello test.
Exceptions included insurance agents, doctors, attorneys, architects, engineers, private investigators and accountants, money managers, direct sales, and many others that fell strictly under the Borello test. Other exceptions like construction, marketing, HR and busineess-to-business contracting, Real estate, repo agencies and another large list had their own specific rules usually based on Borello with a few other considerations.
And a few other situations might not fall under AB5, say if there is an applicable federal law that pre-empts it in which case the Borello test would apply.
See? Simple!
Oh wait. One more thing. AB5 also included a clause restricting freelance writers from accepting more than 35 assignments from a single outlet and made no provisions for musicians or comedians performing at a club as well as being vague on a lot of standard entertainment industry practices. Which led to horror stories of bands not being booked because they would technically have to be employees of the club.
So on September 4, 2020 more exceptions were signed into law repealing the 35 article limit and exempting freelance writers, musicians, recording artists, songwriters, producers, promoters, film support crews, visual artists, translators and more. But not drivers.
Of course you might assume that all of this, which was generally motivated by protecting drivers for Uber, Lyft, DoorDash and others, would have ended up making them employees and getting them all the protections of full-time drivers.
You would be forgiven for making that assumption because that didn’t happen.
Uber and Lyft looked at AB5 and said that they believed their drivers still qualified as independent contractors. They said the drivers are in a different business. Remember Uber says they are a technology platform connecting people with each other. They said the drivers and the riders decide how the work is carried out not Uber. And they said drivers are free to take rides from as many providers as they wish and many drivers do operate for multiple ride-hailing and delivery companies. Plus AB5 never mentions ride hailing specifically. See? They met all three parts no problem.
Well, the state of California and several city attorneys general had a different opinion and sued Uber for violation of AB5. A San Francisco court ruled that the companies would have to reclassify drivers as full time and Uber and Lyft threatened to stop operations in California in reply.
Uber has said it would have to reduce drivers to 25% of its more than 200,000 in California and raise prices as much as 120%. Uber bases that on only having 40-hour/week employees which the law does not require. Some also dispute that fares would have to increase that much.
But it didn’t matter because a state appeals court ruled that the companies needed more time to adapt to the ruling and ordered them to submit sworn testimony that they were developing infrastructure to handle reclassification of drivers as full time employees.
One of the reasons the court gave the companies more time was that Uber and friends are pushing a law at the ballot box that would make the state’s court case moot. Uber, Lyft, DoorDash, Instacart, Postmates and others have spent more than $180 million to support Proposition 22 which will be on the ballot in California November 3, 2020.
On the ballot it will be called Exempts App-Based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers. Initiative Statute. And that’s pretty much what it does. If the voters approve it it will define app-based transportation (rideshare) and delivery drivers as independent contractors and adopt labor and wage policies specific to app-based drivers and companies.
App-based drivers would be defined as someone who
A- provides delivery services on an on-demand basis through a business’s app or platform
OR
B- uses a personal vehicle to provide prearranged transportation services for compensation through a business’s app or platform
But that’s not all Prop 22 would also provide a minimum amount drivers could make based on 120% of the minimum wage applied to a driver’s engaged time and 30 cents a mile.
Limit drivers to 12 hours during a 24 hour shift.
Require health care subsidies equal to 82% of California Covered premiums for drivers who average 25 hours per week. And 41% for drivers who average 15-25 hours per week.
And Require companies to provide occupational accident insurance and accidental death insurance.
The fiscal impact of the bill is listed as “minor increases in state income taxes paid by rideshare and delivery companies” That of course is compared to not making drivers full time employees.
So that’s where we’re at. Lots of folks who are not drivers now don’t count as contractors, lots of exemptions had to be lined out in state law for contractors who the state do want to qualify as contractors and the whole issue of drivers is taken to the ballot box for the people to decide.
I hope now you get where we’ve been who this affected and where we may or may not be going.
In other words I hope now you know a little more about the gig economy.