Independent Contractor Claims in Gig Economy

From The National Law Review, Stephanie L. Adler-Paindiris, David R. Golder, and Eric R. Magnus discuss many of the cases and developments in 2019 surrounding the classification of workers as employees or independent contractors. Stephanie, David and Eric write:

Workers who allege that they are “employees” but were improperly treated as independent contractors continued to be a steady source of litigation in 2019, in part due to the explosive growth of the “gig” or sharing economy. These cases typically arise in the wage and hour context, with plaintiffs suing under the Fair Labor Standards Act (FLSA) or state wage laws and seeking minimum wage, overtime pay, or expense reimbursements. However, independent contractor misclassification lawsuits increasingly assert causes of action under the Employee Retirement Income Security Act (ERISA), with plaintiffs claiming they are entitled to health insurance coverage and other employment benefits that independent contractor status seldom affords. Moreover, these cases are commonly filed as putative class and collective actions.

California’s A.B. 5. The employment status of rideshare drivers and other gig workers gained greater urgency in 2019 with the passage of a California law that codifiedthe “ABC test” of employment status adopted by the California Supreme Court in Dynamex v. Superior Court of Los Angeles County. In that 2018 decision, the state’s high court held that to lawfully classify someone as an “independent contractor,” a company must prove that the worker is largely free from control and direction in the performance of their work; perform work that is outside the usual course of the company’s business — a particular sticking point in the case of gig workers; and customarily engage in “an independently established trade, occupation, or business of the same nature as that involved in the work performed.” Unless an employer can establish all three criteria, the workers in question are employees. This makes it harder for companies with business models that rely on gig workers and other industries that routinely use contingent workers to manage their operations accordingly.

While Dynamex addressed employment status under California’s Industrial Welfare Commission (IWC) Wage Orders, A.B. 5 extends the standard to the California Labor Code and the state Unemployment Insurance Code. As such, it changes how an “employee” is defined in California.Lobbying on A.B. 5 was fast and furious, however, and the law contains several exemptions for certain occupations, including state-licensed professionals (physicians, attorneys, engineers, insurance and real estate professionals), registered broker dealers and investment advisors, individuals performing “professional services” in marketing, human resources, and freelance writing and photography, among others, and business relationships (such as “bona-fide business-to-business contracting relationships,”construction contractors and subcontractors). For those, the determination of employee or independent contractor status will not be assessed under the ABC test, but rather, will be determined under the application of California’s longstanding (and more flexible and employer-friendly)“Borello” test or other existing standards under California law.

California Governor Gavin Newsom signed A.B. 5 on September 18; it will take effect January 1, 2020. Meanwhile, California companies must grapple with the prospect that the 2018 Dynamex ruling applies retroactively, leaving them potentially liable for misclassification under a standardthat did not exist when the determination was made. The U.S. Court of Appeals for the Ninth Circuit has asked the California Supreme Court to address the question (and vacated its own holding on this point); the state high court announced November 20 that it would do so.

Companies outside of California must take heed as well, as California often proves to be a bellwether of what is to come elsewhere in the country. In New York, Senate Bill S6699A, introduced in September, would codify the ABC test into that state’s labor law. And the passage of A.B. 5 likely will breathe new life into prior legislative attempts in Oregon and Washington. (The ABC test is already in place in several other states.)

Joint employment: common-law test applies. In a February decision, the Ninth Circuit adopted the common-law agency test in discrimination cases under Title VII of the Civil Rights Act. It had not previously adopted a test for joint-employer status under Title VII. When the statutory definition of “employer” iscircular, the U.S. Supreme Court has turned to common-law agency principles to analyze the existence of an employer-employee relationship, the appeals court explained, in concluding that this test should be applied in the Title VII context as well. Under this standard, the “principal guidepost” would be the extent of control exercised over the details of the work. And while other elements of the common-law agency test did not fitreadily to the circumstances here — a lawsuit brought by the Equal Employment OpportunityCommission (EEOC) against twoagricultural employers who allegedly, jointly, subjected H2A farm workers to appalling work conditions—the appeals court found the defendants had sufficient controlover the workers for this factor to be determinative, and to find they were joint employers.

Read the full story at  Independent Contractor Claims in Gig Economy

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