California Supreme Court Strikes Blow to Software Industry Reliance on Gig Workers

If your software company is relying on so-called “Gig workers” to provide a service managed by your app and software platform, then you need to know about a California Supreme Court ruling just issued this week, which is likely to severely limit your ability to rely on the “Gig worker” model going forward in the state of California.

The California Supreme Court held that the following three part test is the standard in California for classifying a worker as an independent contractor: (a) the worker is free from the control and direction of the hiring entity in connection with the performance of the work; (b) the worker performs work that is outside the usual course of the hiring entity’s business; and (c) the worker is customarily engaged in an independently established trade, occupation, or business.  The Court emphasized that with respect to the last part of the test, the worker will have made an affirmative decision to go into business, taking such steps as “incorporation, licensure, advertisements” and “routine offerings to provide the services of the independent business to the public or to a number of potential customers, and the like” and will not just be “designated an independent contractor by the unilateral action of the hiring entity.”   A copy of the decision is linked here.

According to CNN, California’s test for classifying workers as independent contractors will now be the toughest test in the United States, and the Supreme Court’s ruling will significantly limit the ability of online platforms to treat workers as contractors, except perhaps in cases where the workers are in the same line of business off the platform and also work with other similar platforms.

As the LA Times reported, “[the] decision has implications for the growing gig economy, such as Uber, Lyft, and other app-driven services” but suggested that the implications would go beyond the gig economy to virtually every industry and would prompt California businesses to “immediately question whether they should reclassify independent contractors.”

As a Silicon Valley technology lawyer who has been closely following the litigation testing the Gig worker model, I have anticipated a legal decision that would limit the increasing reliance within the industry on Gig workers to build new business models and have been surprised that we did not already have such a decision.  The California Supreme Court’s ruling does put an online business platform’s decision to rely on independent contractors to perform services offered under the platform under significantly more scrutiny that had existed in the past.  But I would argue that the implications go far beyond state employment laws.  I would argue that perhaps an even more important consequence of this ruling that it imposes very clear liability on the online business company for the acts of the workers arranged through the online business platform.   I have long been concerned about the safety implications of procuring services from relatively unscreened independent contractor workers and have expected that this would become a problem for the online business platform model down the road precisely because of the reliance on Gig workers.  Indeed, there seem to be now  reports on almost a weekly basis of crimes being committed by Gig workers against customers.  CNN published a report just this week on sexual assault and abuse cases against Uber drivers.  This article just tracked reported sexual assault and abuse cases but there are certainly many more unreported cases that could not be included in the CNN report, since sexual crimes tend to be very under-reported due to the very nature of the crimes.  If this report had included other types of crimes, who knows what the number of reported crimes would have been just for Uber?  For Uber as well as all of its competitors?  I would argue that this case not only has the potential to change the relationship that many online platforms have with workers but also it has the potential to impose greater responsibility on online platforms with respect to worker conduct and keeping their customers safe.  It is an open question, however, what imposing the responsibilities of an employer in terms of liability for workers will do to business models that have taken off largely due to the lower cost to operate a model which provides services without taking on all the traditional liabilities associated with providing that service.

The bottom line is that if you are software company operating under the Gig worker model or building a business where you plan to rely on the Gig worker model, you need to be aware of this decision and to start following how it is applied going forward, as it is a significant legal development, and it is certain to have an ongoing impact on your business.

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