Are gig economy workers employees or independent contractors?

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Posted by Legal Team On August 15, 2022

The California Supreme Court recently adopted the ABC standard for classifying independent contractors.

A recent California Supreme Court ruling is likely to have major implications for how workers across California and even the nation are classified. As the Mercury News reports, the state’s Supreme Court adopted a simplified test for determining when a worker is considered an employee rather than an independent contractor. The change could mean that many current gig economy workers, many of whom are not protected by minimum wage and overtime laws, could be reclassified as employees.

The ABC standard

The previous standard for determining whether a worker is or is not an independent contractor was complicated and multifaceted. In its 85-page ruling, the California Supreme Court tossed out that previous standard and instead opted for a so-called “ABC” standard. The ABC standard is based on independent contracting standards used by Massachusetts and New Jersey. While the ABC standard is fairly simple and straightforward, it also makes it much more difficult for employers to classify workers as independent contractors.

Under the ABC standard, a worker can only be classified as an independent contractor if any of the following three conditions are met:

1. The worker is in control of his or her work

2. The worker is performing a job that is beyond what the business usually does.

3. The worker is engaged in an independent trade, occupation, or business of the same type that the hiring business is engaged in.

For example, if a ride-hailing company were to hire an electrician to fix the wiring at the company’s headquarters, then the electrician would likely be considered an independent contractor. However, a ride-hailing company would have a much harder time arguing that its drivers were independent contractors since those drivers perform a service that is central to the company’s business model.

Implications for California workers

The decision could have huge implications for California workers as well as for countless gig economy workers across the United States. That’s because many gig economy startups are headquartered in California.

As the Los Angeles Times reports, 8.4 percent of the U.S. workforce is currently classified as independent contractors. Gig economy companies, which have long relied on classifying workers as independent contractors as a way to reduce costs, are likely to be especially impacted by the recent ruling. However, even well-established corporations have been accused of misclassifying employees. FedEx, for example, routinely classifies its drivers as independent contractors, something that has caused quite a bit of controversy for the company.

Employment law

Employee misclassification may reduce costs for employers, but it means workers are denied important wage benefits. An employee who believes they may have been misclassified should get in touch with an employment attorney today. An attorney can help clients fight for the benefits and compensation they may ultimately be entitled to.