California’s struggle to classify gig-economy workers reflects a nationwide uncertainty

Recent lawsuits in California have the potential to alter the way states handle the issue of the distinction between employees and independent contractors in the expanding gig-economy.  The California Court of Appeals has upheld a ruling by a trial court that Uber and Lyft must classify their drivers in California as employees, not independent contractors. 

The lawsuit, People of the State of California v. Uber Technologies, Inc. et al., began over claims that Uber and Lyft were violating a California state law called AB-5 that requires workers to be classified as employees unless the companies were able to prove that “the person is free from the control and direction of the hiring entity in connection with the performance of the work.”  This language is not entirely different from that used by courts attempting to distinguish between employees and independent contractors.  The determination by the courts has largely focused on the level of independence and control the worker has versus that of the company.  While this focus is on the right of control that the employer retains over the means and manner of the individual’s performance of their work, the decision requiring reclassification of the drivers as employees turned on the question of whether the individual performs work that is outside the usual course of the hiring entity’s business.

The trial court ruled in favor of the State, granting a preliminary injunction that prohibited Uber and Lyft from classifying their drivers as independent contractors based on the argument that the drivers were not performing work that was beyond the “usual course” of the company’s business.  The ride-sharing companies (Uber and Lyft) appealed the decision to the Court of Appeals, but Justice Jon Streeter affirmed the lower court’s decision.  Justice Streeter held that the injunction was proper because the mis-classification of the workers would result in substantial irreparable harm. 

These harms are primarily reflected in the differences in benefits and wages earned by employees versus those earned by independent contractors.  While independent contractors enjoy more independence from the company, including generally freedom from long-term commitments with the company, they do not enjoy the same wage and benefit protections that the law requires for company employees.  Justice Streeter emphasized the lack of breaks, overtime pay, health insurance, or sick leave for independent contractors, warranting the issuance of a preliminary injunction to prevent the considerable harms that could result from denial of the benefits.   

The direction of the caselaw in California, pushing toward greater classification of workers as employees as opposed to independent contractors, was challenged by Proposition 22 which was adopted by the voters of California in the most recent November election.  Proposition 22, which was backed by companies such as Uber and Lyft, including pro-business Chambers of Commerce and associations calls for the classification of so-called “gig-economy” workers as independent contractors, not employees.  This proposition served to effectively override AB-5.  

 The decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, created a “presumption that a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits arising under wage orders issued by the Industrial Welfare Commission.”  AB-5 codified the decision of the California Supreme Court.

Proposition 22 conversely defined the time in which workers are “engaged” to be only that which occurs between the time a driver accepts a passenger, delivery, or “gig,” and when that “gig” is complete.  As such, Proposition 22 reduces the time during which workers are considered engaged because it removes from consideration any time during which the workers are marked as “available” for work on the app when they are not in the midst of completing a gig.  Consequently, they are unable to be paid for the time or mileage during these in-between periods, and they do not accrue benefits. 

The varying directions the California legislature and courts have gone in setting a legal framework for classifying gig-economy workers reflects the ongoing debates in many states for handling the expanding group of workers in an increasingly technology driven economy.  Restaurant and grocery delivery services such as Grub Hub and Chow Now have grown in commonality, particularly during the COVID-19 pandemic when individuals have been unable to eat at restaurants.  While the varying situations are hard to predict, Pennsylvania has also recently had to deal with litigation relating to gig-economy workers.  The Pennsylvania Supreme Court was called upon  to interpret what it meant for a worker to be “customarily engaged” in work and effectively narrowed the definition of an independent contractor in the case Special Touch v. Department of Labor Industry, which was decided in April of this year.  The court similarly narrowed what it meant to be “self-employed” when working for a ride-sharing service for purposes of unemployment benefits in Lowman v. Unemployment Compensation Board of Review.

While the court holdings and laws of California are not controlling with respect to Pennsylvania residents, the decisions do offer guidance into the ways in which our economy’s expanding reliance upon gig work necessitates further review of traditional legal employment classifications.  The decisions emanating from California reflect the struggle for proper classification that is present in Pennsylvania and will provide useful guidance going forward.   

With contribution from Angela Mauroni, second year J.D. candidate at the University of Pittsburgh School of Law.

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