Recent Court Decisions Attempt to Clarify Status and Futures of “Gig Workers”

A recent string of legal decisions regarding workers in the “gig economy”, the free market system in which temporary positions are common, point to control as the crux of their classifications. The court decisions hold that gig workers are usually independent contractors, as opposed to traditional employees. This means that individuals working for companies like Uber, Lyft, Grubhub, Postmates have greater flexibility with regard to working hours but do not receive the same benefits as traditional employees. Courts use the provisions of the Fair Labor Standards Act (“FLSA”), state laws, and persuasive tests such as one set forth in Borello to determine the proper classification of employees.

The trend towards independent contractor classification, both in case law and Department of Labor (DOL) publications, is a recent departure from the guidance of the Obama administration, which tended to classify more workers as employees. As more and more traditional business sectors turn toward app-based services for efficiency and on-demand capabilities, it will be interesting to see whether legislatures classify workers in novel ways to keep up with new economic realities, or if it will be up to the courts to continue taking the lead.

The first decision to examine gig economy workers is the 2018 opinion from the United States District Court for the Northern District of California in Lawson v. Grubhub. Mr. Lawson sued Grubhub, a food-delivery service, based on minimum wage violations, unpaid overtime, and other benefits that might have been in play had Mr. Lawson been classified as an employee. The California court used the Borello test to determine whether Mr. Lawson was a 1099 contractor or a W-2 employee. The Borello test looks at the overall control level of the superior in the relationship, using such factors as:

•      Does the superior provide tools and a place to work?

•      Is the worker required to invest in equipment, materials, or helpers?

•      Does the worker’s profit or loss depend on their managerial skill?

•      Is the alleged employee engaged in an occupation or business distinct from that of the superior?

•      Is the work done under the direction of the superior? Or by a specialist without supervision?

The smaller the amount of superior control, the more likely this test is to label workers as independent contractors. Judge Corley noted in his opinion that “while some factors weigh[ed] in favor of an employment relationship, Grubhub’s lack of all necessary control over Mr. Lawson’s work, including how he performed deliveries and even whether or for how long, along with other factors persuade the Court that the contractor classification was appropriate for Mr. Lawson during his brief tenure with Grubhub.”

Mr. Lawson is currently in the appeals process for his case, attempting to wield the new “ABC test” introduced later in 2018. In Dynamex Operations W v. Superior Court, the California Supreme Court’s new test appears to be more likely to classify individuals as employees. Employment firm Fisher Phillips notes that with the ABC test, “the burden is now on the business to demonstrate that every worker is not an employee by proving all three of these elements”:

•   (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

•    and (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 of the same nature as the work performed.

In Razak v. Uber Technologies, Inc., a Pennsylvania District Court used yet another test. In Razak, the court applied the Third Circuit’s six-factor test developed in Donovan. The Donovan test resembles the Borello test in structure but has different factors. Once again, control is at the heart of the test. The six Donovan factors are:

•    the degree of the alleged employer’s right to control the manner in which the work is to be performed;

•    the alleged employee’s opportunity for profit or loss depending upon his managerial skill;

•    the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;

•    whether the service rendered requires a special skill;

•    the degree of permanence of the working relationship; and

•    whether the service rendered is an integral part of the alleged employer’s business

Mr. Razak and two associates sued UberBlack (the limousine arm of Uber) and its wholly-owned subsidiary Gegen, LLC on similar grounds to those asserted in Lawson. The District Court, using the Donovan test, ruled in favor of the defendants, holding that the Plaintiffs had not provided adequate proof showing they were employees. However, the case is currently in appeals proceedings. A final order in favor of the Defendants could further weaken related claims from gig workers, while a final order in favor of the Plaintiffs could upend the status quo for both companies’ policies and employees’ livelihoods.

The lack of uniformity in the above cases and tests provide uncertainty when it comes to gig workers’ futures. Currently, courts look primarily at control when determining whether workers are independent contractors or employees, and companies’ apparent lack of control pushes courts toward an independent contracting relationship. Trends such as educational gaps, changing attitudes, and technology growth mean fewer and fewer employees possess traditional 401(k) retirement and benefits facilities. Sponsored apps such as Betterment (an Uber program) attempt to fill the void by creating unique retirement plans for gig workers. OregonSaves, Oregon’s public savings option, recently included gig workers in the IRA system. Without a larger recognition from legislatures, courts and these smaller-scale programs will have to suffice in shaping the long-term outlook of gig workers.

By: Alex Dondershine, a  Berenzweig Leonard  law clerk attending Cardozo School of Law