Updates on the Gig Economy: The (Mis)classification Debate

Ross Dispenza, CLS ’21

The ongoing war between labor and the daily-growing cadre of gig economy companies has been fought on many fronts, but perhaps none so active in recent months as the question of whether app-based workers for companies like Uber, Lyft, and Postmates are properly classified as employees or independent contractors.

The answer has high stakes for both sides; if the workers are determined to be employees, then the companies will be liable for contributions to workers’ compensation and unemployment insurance funds (estimated to be overdue in the billions[1]), and be subject to the requirements of the Fair Labor Standards Act[2] (the federal law guaranteeing employees, inter alia, a minimum wage and overtime protections) and state equivalents.

In September, the California state legislature tightened the standard for classifying workers as independent contractors by passing Assembly Bill 5, adopting a standard commonly known as the “ABC test” and codifying the California Supreme Court’s prior decision in Dynamex.[3] Under the ABC test, a worker can only be considered an independent contractor if the following three requirements are met: (1) the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (2) the worker performs work that is outside the usual course of the hiring entity’s business; and (3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.[4]

For its part, Uber says that it has no plans to reclassify its drivers in response: “We continue to believe that drivers are properly classified as independent,” said chief legal officer Tony West.[5] Despite the bluster, though, AB 5 has attracted a significant level of challenge, including from Uber itself, who, along with Lyft and DoorDash, have committed to spending a combined $90 million to put a referendum on the ballot in 2020 to repeal it.[6] The law faces legal challenges in addition to political ones; the California Trucking Association recently filed a lawsuit in the U.S. District Court for the Southern District of California to enjoin enforcement of AB 5 on preemption grounds.[7]

A quieter battle has been simmering here in New York; last June, in Matter of Vega, a closely-divided appellate division panel reversed a determination by the Unemployment Insurance Board of Appeals’ that a Postmates worker was an employee, saying that the workers are functionally free from Postmates’ control.[8] The Court of Appeals granted certiorari and will hear oral arguments this winter.[9] Though there are few indications of which way the court will decide, we can hope that they might be inspired by the Dynamex decision and extend basic workplace rights to New York’s gig workers.

[1] See National Employment Law Project, Independent Contractor Misclassification Imposes Huge Costs On Workers and Federal and State Treasuries, NELP (July 22, 2015), https://www.nelp.org/publication/independent-contractor-misclassification-imposes-huge-costs-on-workers-and-federal-and-state-treasuries/

[2] 29 U.S.C. § 201 et seq.

[3] Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903 (2018).

[4] Cal. Labor Code § 2750.5.

[5] Levi Sumagaysay, Uber Defiant as Gig Workers on Verge of Becoming Employees Under AB 5, The Mercury News (Sept. 10, 2019), https://www.mercurynews.com/2019/09/10/uber-defiant-as-gig-workers-on-verge-of-becoming-employees-under-ab-5/

[6] See Alexia Fernández Campbell, Uber and Lyft Have Launched a Campaign to Avoid Government Regulation in California, Vox (Oct. 29, 2019), https://www.vox.com/identities/2019/10/29/20938109/ab5-uber-lyft-ballot-initiative-referendum

[7] Cal. Trucking Ass’n. v. Becerra, No. 3:18-CV-02458 (S.D. Cal. filed Oct. 25, 2018).

[8] Matter of Vega (Postmates Inc. – Commissioner of Labor), 162 A.D.3d 1337 (N.Y. App. Div. 2018).

[9] Matter of Vega, No. APL-2018-00143 (N.Y. appeal docketed Dec. 13, 2018).