California’s New Ruling on the #GigEconomy

The April 30th opinion handed down by the California Supreme Court about worker classification has been described as a “seismic shift” which could cause “the end of the Gig Economy.” Those latter dire predictions suggest that the curtain is coming down on what has become a whole new stage for the future of work.  My view, albeit a bit more jaded, is that there are a number of acts to come, and it will be fascinating to see how it all plays out.

In the spirit of full disclosure, I am not an employment attorney.  Rather I have been an entrepreneur in the human capital space, starting a #GigEconomy company in 1988 before it was in vogue; M Squared Consulting matched independent consultants to clients, individuals who were frequently providing services as 1099 consultants. As a result, 5 years later, I started an employment compliance company. Since the ambiguity of worker classification was impairing our growth, I needed to create a way for my clients to secure the services of our amazing consultants without the specter of employment classification risk.

Dynamex Operations West vs. Superior Court

That said, I read all of the coverage about the California opinion with great interest. The case, Dynamex Operations West vs. Superior Court involved a delivery company who had employed delivery staff, but then converted them to be independent contractors. The judges determined that in this case the ABC standard needed to be applied to the question of whether the workers were employees or contractors.  The ABC standard is that workers can be classified as independent contractors only if the hiring company demonstrates that the worker in question satisfies all of the three conditions: (A) that the hiring company does not direct or control the worker (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is engaged in an independent business of the same nature as that involved in the work performed.  The judges ruled, that once applied, there was no question that the workers were employees.

Reading this, I had several questions about the applicability of the opinion as well as the implications going forward on various types of on demand talent platforms. I reached out to Rich Mengehello, a partner at Fisher Phillips who runs the Gig Economy practice to find out the answer to some of my questions.

Employee vs. Independent Contractor

I wondered about the applicability of the opinion given that the workers had been employees and were then converted.  On the one hand, that makes the optics of the situation look bad, but, it should not limit the opinion. That said the opinion applies to Dynamex only.  Although one could argue it will now apply to a whole host of other companies, the question won’t be called until a worker at one of those firms files a suit. As such, Lyft, Task Rabbit, and Handy, as well as many others, will continue doing business as usual until a suit is brought by one of their workers. It is these (likely) subsequent suits which will tease out the nuance in the opinion.

The nuance is important, especially because of point B, “is the worker operating in the usual course of business”.  Uber, Lyft and other ride sharing companies are likely to construe themselves not as ride companies but as transportation logistics technology companies, and rightly so.  For example, I serve on the Board of The Front Porch, a Continuing Care Retirement Community.  At one location in California, we are partnering with Lyft for a business to business service to transport our residents. Lyft deals with our facility and we handle the billing, since our residents may not have smart phones and may not want to deal with their credit cards.  Through the Lyft platform, we have the security of knowing where are residents are, that they have been picked up on schedule, and at which time we can expect them to be back on site. As such, the information and functionality of the platform is key to the value of this service for our company.  For me, the transportation logistics company positioning works.

Company Classification Matters

Similarly, as I look at firms that are not in the on-demand space, but in the space I helped create with just in time consulting, they also do not consider themselves as human capital firms.  At a “Collaboration in the Gig Economy Conference” in the fall, an Upwork executive corrected the audience by saying that Upwork is a technology platform, not a staffing company.  It is their algorithmic approach which is technology based that is critical to their value and growth. Their intent is to identify the optimal talent and enable a match.  That said, they have added an Enterprise Solutions product which includes giving clients the option of employing an Upwork resource rather than engaging them on a 1099.  As a regular client on Upwork, I was delighted to see this addition, though I was alerted because I added one hour to my project.  Were I to put my compliance hat back on, that additional one hour worked by my marketing consultant would not have raised concerns for me, but good for Upwork nonetheless.

Interesting Platforms Lead to New Business Models

Additionally, there are many platforms in the #GigEconomy that have different business models.  Thumbtack, for one, is a great platform for personal service providers, from videographers to gardeners. They work as a referral service for these entrepreneurs, providing leads.  They also offer additional services to help these independent workers better manage their businesses; why should a great handyman need to understand financial management?  They also offer pricing tools and a sense of community.  They are a gig economy company with no employment implications. Here is a blog post I did on them in the fall.

Another example is Loom, which is a specialty platform that provides talent for start-ups.  Their unique niche is that the talent is willing to work for equity, rather than immediate cash compensation.  That model has some interesting complexities, not the least of which is the valuation of the equity offered.  However it does not have that same independent contractor risk.

Finally, there are other #Gig Economy companies who are taking on the employment responsibility for Independent workers.  Shift Pixy, which I profiled in my recent book, Thriving in the Gig Economy, is a prime example. They specialize in providing shift workers full time jobs in the hospitality/fast food sector by enabling them to choose shifts that work for their schedules at various food service firms.  Shift Pixy offers benefits as well as the flexibility sought by those in the gig world.

So, I do not foresee the end of the #GigEconomy as a result of the California Supreme Court decision.  That said, I do believe it will create much more dialogue on the subject of independent contractors and employees, and perhaps that will lead to more clarity in the law.  If that were the final act, I would applaud it.

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