The Modern Challenge: Determining the Employment Status of Gig Workers
Classifying workers as either independent contractors or employees has become increasingly difficult. With the rise of the gig industry, courts are confronted with a complex legal question: where do workers such as Uber and DoorDash drivers fit into US labor law? The answer to this question has important implications, as the formal status of employee comes with an array of rights and benefits, such as a minimum wage, paid sick leave, healthcare coverage, bargaining rights, and unemployment insurance. However, current frameworks delineating between independent contractors and employees are less than satisfactory, leaving room for substantial judicial discretion. The common law control test comprises multiple factors that assess the extent to which the hiring party controls what the worker does as well as how and where they perform their job. The other system of classification consists of the economic realities test, which evaluates whether the worker is economically dependent on the alleged employer. While businesses push for a restricted definition of who qualifies as an employee, labor advocates and plaintiff-side attorneys urge for an expansive understanding of the term, in order to grant legal protections to a wider range of workers. This tug-of-war has led to tremendous variability in the interpretation of the two aforementioned tests, which fail to establish conclusively whether gig workers are employees or independent contractors. Courts concede that the tests for assessing employment status are vague and produce legal confusions. In Richardson v. APAC-Mississippi, the Supreme Court of Mississippi asserted that “the various tests to determine the type of relationship are themselves generalities which can be viewed quite differently, depending upon which judge is applying them.”
The present-day configuration of the US labor market looks starkly different than it did just a decade ago. The gig sector, which is composed of workers providing on-demand service, experienced a significant boost due to the emergence of platform-based companies such as Uber, Airbnb, and Lyft. These digital platforms view their workers as independent contractors, as the contractors usually perform their tasks on a part-time basis, allowing them to enjoy a greater degree of flexibility than individuals who are party to a standard full-time employment contract. To evade the high costs of providing their workers benefits, companies try to portray their workers as being entrepreneurial and largely independent. For instance, Uber declared in a case heard before the California Labor Commissioner’s Office in June 2015 that the company was merely “a neutral technological platform designed simply to enable drivers and passengers to transact the business of transportation.” Every day, millions of Americans use the services provided by companies like Uber (e.g., ordering a ride) and GrubHub (e.g., ordering food to be delivered), proving that a large part of American society participates in the gig industry. The centrality of gig work to the everyday lives of many Americans makes the classification of workers performing these jobs only more pressing.
Courts have attempted to bring some clarity to the uncertainties around the status of gig workers, using old tests and adopting new ones to differentiate between workers who qualify as employees, on the one hand, and those who are in the more volatile position of independent contractors, on the other. I argue that the widely used common law control test and the economic realities test are ambiguous but a recent renewal of the ABC test in the Dynamex Operations W. v. Superior Court decision establishes clearer criteria that would prevent companies from misclassifying workers as independent contractors. While the ABC test still contains some interpretative ambiguities, it is currently the most optimal method to determine a gig worker’s status. I will also briefly touch upon a counterargument to the dichotomy between employees and independent contractors, defending the position that we should not abandon this dual framework in favor of a third category, since doing so would raise difficult constitutional questions.
The first test that I will discuss had been in use long before an app-based company was a conceivable reality. According to the common law control test, the key distinction between the two employment categories lies in the extent to which the hiring entity controls the manner and means by which the worker carries out their tasks. If the former has a high degree of control over the latter’s performance of tasks, then the worker should be recognized as a formal employee entitled to an extensive series of protections and benefits. In addition to the issue of control, judges using this test also take note of whether the worker is under the direct supervision of the hiring party. Other factors of the common law control test include whether workers provide a service that is integral to the employer’s business, the level of skill required to execute a task, the duration of the employment relationship, the source of tools, the method of payment, the physical location of work, and parties’ intent in the case an employment agreement exists. Since employment presents itself in many different guises, it is understandable why the judiciary has tried to use a multifactor test to establish gig workers’ status. However, this test gives rise to significant confusion that makes determining workers’ employment status a highly unpredictable and subjective endeavor. Law professor Barton Beebe argues that “multifactor tests of ten or even eight factors appear to ask too much of the judge’s ability simultaneously to weigh competing concerns and may simply result in the stampeding of less significant factors.”
The ambiguous nature of the control test is evident when one considers the disparate conclusions that different courts reach despite grounding their decisions in similar iterations of the test. In O’Connor v. Uber Techs., Inc. (2015), the United States District Court for the Northern District of California ruled that Uber wrongfully classified the plaintiffs as independent contractors. While the company claimed that it neither controls its drivers (by letting them set their own hours) nor oversees them, the court found that Uber controls its drivers in meaningful ways. Moreover, it held that Uber would cease being a functioning business without its drivers, indicating that drivers are an integral part of the company. In its decision, the Court downplayed the importance of factors that favor independent contractor status, such as location of work or method of payment. On the contrary, in Darrin E. McGillis, Appellant, v. LLC UBER (2017), the Florida Third District Court of Appeal upheld a prior decision establishing that Uber drivers are not employees and thus do not qualify for reemployment assistance. The court reached this conclusion on the basis of the Restatement (Second) of Agency, which is a ten-factor test that is rooted in common law principles. Here as well, control is the pivotal factor in determining a worker’s employment status. The court maintained that Uber’s technology grants significant freedom to drivers, who decide whether to accept trip requests. Moreover, the judges found that Uber does not directly supervise drivers and allows them to work for its competitors. In this instance, the court ruled that Uber drivers are independent contractors, using similar common law principles to those cited in the O’Connor ruling. Since there is significant variation in how different judges weigh the control test’s requirements, the common law control test is highly subjective and difficult to apply consistently across cases.
Courts may also use the economic realities test to determine an individual’s employment status and the benefits they are accordingly entitled to receive. This test gauges the extent of a worker’s economic dependence on their alleged employer. It sets forth a list of factors that is usually briefer than the one found in the common law of control test. Under the Fair Labor Standards Act (FLSA), some of the factors that make up the economic realities test include the nature and extent of control by the hiring party, the worker’s opportunities for loss and profit, the permanency of the employment relationship, and the degree to which the worker has invested in equipment. While the test is often regarded as a clearer and more concise alternative to the common law control test, there is a considerable overlap between economic reality factors and common law guidelines, which only exacerbates the lack of certainty around employment classification. The two tests are so similar that “judges frequently confuse the tests by intermingling certain factors, while ignoring others.” Furthermore, much like is the case for the common law control test, federal FSLA decisions held that “no one factor [of the economic realities test] is determinative” and thus decisions regarding a worker’s employment status should consider “all the circumstances.” As a result, judges are required to make subjective judgments about which aspects of economic reality are the most relevant.
Given the complicated provisions of these two tests, the California Supreme Court recently adopted a clearer framework for classifying workers that promises to illuminate once and for all the status of gig workers in the United States. In the landmark case Dynamex Operations W. v. Superior Court (2018), the Court held that drivers for Dynamex, a same-day delivery company, are employees for the purposes of California wage orders, which impose certain minimum wages, maximum hours, and working conditions on employees. The Court acknowledged the failure of existing judicial practices to unequivocally classify workers: “The difficulty that courts in all jurisdictions have experienced in devising an acceptable general test or standard that properly distinguishes employees from independent contractors is well documented.” As such, the California Supreme Court utilized a three-factor test, avoiding the indeterminacy of the two abovementioned approaches. The tribunal affirmed that workers should be treated by default as employees, putting the burden of proof on the company to establish that a worker is instead an independent contractor. Accordingly, the hiring entity must satisfy all three prongs of the ABC test to eschew the obligations of a standard employee. These are that: (A) the worker is free from the control and discretion of the hiring party in the performance of their services (B) the worker performs tasks that are outside the hirer’s usual course of business (C) the worker is actively engaged in an independently established occupation of the same nature as the services provided for the hiring party. The ABC test assesses more accurately whether workers benefit from genuine financial autonomy and thus reduces the risk of worker misclassification.
While the three factors test is undoubtedly more effective than other methods of classification at dissipating any uncertainties that might arise with respect to worker’s employment status, it is worth turning our attention to an aspect of the ABC test that is rather ambiguous and in need of further clarification. Namely, the California Supreme Court did not specify what qualifies as being within the hirer’s usual court of business. Recently, the U.S. Ninth Circuit Court of Appeals established that all formulations of this second factor that vary by jurisdiction are pertinent to determining a worker’s status. However, this is disorienting because of the significant variation in how different courts have framed Prong B. For instance, under one formulation of Prong B that considers what the business itself claims to be, Uber could make the case that it is a technology platform as opposed to a firm providing goods and services. To combat the unpredictability that is now notoriously associated with the classification of workers, courts need to clarify which formulation of Prong B is the most suitable for categorizing workers. Nonetheless, this minor drawback does not diminish the importance of the fact that the ABC test is a valuable step towards solidifying the status of gig workers as employees. The California legislature codified the Court’s decision in the Dynamix case into Assembly Bill No.5 (AB5), requiring companies across the state to classify all ride-sharing drivers and other gig workers as employees.
My discussion so far has been within the bounds of the long-established binary framework that classifies workers as either employees or independent contractors. However, as AB5 formally encoded into statewide law the ABC test (which favors the conceptualization of gig workers as employees), gig companies, with Uber at the forefront, have been increasingly pushing for the creation of a third category of employment. App-based companies have devoted a great deal of effort, time, and, of course, money, to revoking AB5, which ultimately culminated in a ballot initiative under the name of Proposition 22. This ballot measure proposed treating gig workers as independent contractors who would enjoy a few minor benefits, such as a minimum wage, health insurance, and protection from workplace discrimination, thereby creating a new intermediary category exclusively for app-based gig workers. Uber, Lyft, and DoorDash spent more than $200 million on their campaign in support of Proposition 22, which ultimately passed with 59% of the votes. Proponents of this new category argue that Prop. 22 is the “best of both worlds,” maintaining workers’ valued flexibility, all while granting them certain benefits. However, apart from the fact that workers would only receive baseline benefits, the new intermediary category, enshrined in Prop. 22, raises important legal questions — indeed, Judge Frank Roesch of the Superior Court of California, County of Alameda, recently held that the Proposal was unconstitutional. Judge Roesch provided several reasons for his decision. First, the ballot measure infringed on the constitutional prerogative of the State Legislature to control workers’ compensation, “limit[ing] the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law.” Moreover, the judge highlighted that the Proposition constrained the legislature’s ability to make any serious changes, by imposing on the body the unusually high requirement of reaching a seven-eighths majority to amend the Proposition. Lastly, the judge asserted that the Proposition unduly restricted workers’ bargaining rights. Thus, recent efforts to circumvent the dual system of classifying workers have given rise to violations of the California State Constitution. Any future attempts to carve out a separate employment category for gig workers would need to address these constitutional transgressions.
The rise of app-based gig work poses a challenge to employment classification tests. The ambiguity of the common law control test and economic realities test creates confusion about the status of gig workers, as some judges assert that they are employees while others view them as independent contractors. The ABC test reduces the extent of judicial discretion in decisions about gig workers’ status, as it offers judges a set of guidelines that is less open to subjective interpretation. As this three-factor test is generally clear on the specific instances when workers are independent contractors, efforts to create an intermediate employment category are no longer necessary, especially since recent attempts such as Proposition 22 in California were held to be unconstitutional.
References
[1] Richardson v. Apac-Mississippi, Inc., 631 So. 2d 143 (Miss. 1994)
[2] Kathleen Thelen, “The American Precariat: U.S. Capitalism in Comparative Perspective,” Perspectives on Politics 17, no. 1 (2019): pp. 5-27, https://doi.org/10.1017/s1537592718003419.
[3] Ibid.
[4] Berwick v. Uber Techs. Inc., Case No. 11-46739 EK, Cal. Labor Comm’n (June 3, 2015).
[5] Jennifer Pinsof, “A New Take on an Old Problem: Employee Misclassification in the Modern Gig-Economy,” Michigan Telecommunications & Technology Law Review 22, no. 2 (July 20, 2016): 341–73.
[6] V. B. Dubal, “Wage Slave or Entrepreneur?: Contesting the Dualism of Legal Worker Identities,” 2017, https://doi.org/10.15779/Z38M84X.
[7] Barton Beebe, “An Empirical Study of the Multifactor Tests for Trademark Infringement,” California Law Review 94, no. 6 (December 1, 2006): 1581, https://doi.org/10.2307/20439078.
[8] O'Connor v. Uber Technologies, Inc., 82 F. Supp. 3d 1133 (N.D. Cal. 2015)
[9] McGillis, Appellant, v. Department of Economic Opportunity; and Rasier LLC, d/b/a UBER, Appellees, So. 3D15-2758 (Fla. Dist. Ct. App. 2017)
[10] “Fact Sheet 13: Employment Relationship Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor,” accessed November 12, 2021, https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship.
[11] Keith Cunningham-Parmeter, “Gig-Dependence: Finding the Real Independent Contractors of Platform Work,” Northern Illinois University Law Review 39, no. 3 (June 201AD): pp. 379-427.
[12] Dynamex Operations W., Inc. v. Superior Court , 4 Cal.5th 903, 232 Cal. Rptr. 3d 1, 416 P.3d 1 (Cal. 2018)
[13] Ibid.
[14] Ibid.
[15] Recent Legislation, “Assemb. B. 5, 2019–2020 Leg., Reg. Sess. (Cal. 2019),” accessed November 12, 2021, https://harvardlawreview.org/2020/05/assemb-b-5-2019-2020-leg-reg-sess-cal-2019/.
[16] Vazquez v. Jan-Pro Franchising Int'l, Inc., 986 F.3d 1106, 923 F.3d 575 (9th Cir. 2019)
[17] Kate Conger and Noam Scheiber, “California Bill Makes App-Based Companies Treat Workers as Employees,” The New York Times, September 11, 2019, sec. Technology, https://www.nytimes.com/2019/09/11/technology/california-gig-economy-bill.html.
[18] Kate Conger, “Uber and Lyft Drivers in California Will Remain Contractors,” The New York Times, November 4, 2020, sec. Technology, https://www.nytimes.com/2020/11/04/technology/california-uber-lyft-prop-22.html.
[19] Ibid.
[20] “Castellanos Order,” accessed November 12, 2021, https://www.documentcloud.org/documents/21046832-castellanos-order.
[21] Ibid.