The rise of independent contracting has delivered benefits for some, such as greater flexibility for workers and lower costs for employers. But it also ensnared some people in low-wage jobs without benefits, working schedules that can change daily.
Now, after a state Supreme Court ruling, businesses across California could be forced to reclassify segments of their workforces as employees, with profound effects on workers and companies.
By toughening requirements for when a worker is actually an employee, the California Supreme Court won praise from labor advocates who say the move will put more dollars in the pockets of previously misclassified workers. Independent contractors are not subject to minimum wage, overtime or workers' compensation requirements. The ruling may force companies in certain industries, especially in the app-driven gig economy, to change their business model.
"Almost every industry has dipped their toe in the independent contractor, freelancer model," said Rich Meneghello, a partner with Fisher Phillips, a national law firm that represents employers. "As of today, they are all going to have to apply this new test."
Ron Miller, executive secretary of the Los Angeles/Orange Counties Building and Construction Trades Council, said many subcontractors across the building industry don't hire employees for jobs, but rather label workers independent contractors and pay them in cash. That undercuts companies he described as "playing by the rules."
Miller said he expects the ruling to encourage more construction workers to be hired as employees, but he predicted change would be slow.
"The folks that are out there cheating are always going to look for a way to cheat," he said.
Nick Cammarota, general counsel for the California Building Industry Association, said he doesn't expect the ruling to have much effect on the group's large homebuilders. He said they hire reputable, experienced companies that use employees. But he noted others could face problems.
Experts said the greatest effect is likely to be on companies that hire contractors to perform work that would be considered a core part of their business. In its ruling, the California Supreme Court simplified a multistep test for qualifying as a contractor, centered on how much control an employer had over a worker. Those complicated rules were open to multiple interpretations.
In its place, the court set up a three-step test, the most important requirement being that a contractor must perform work outside the hiring company's usual course of business.
Meneghello, who co-chairs Fisher Phillips' gig-economy practice, said companies will find it difficult to argue that workers are independent if they have to answer "no" to the question "If you remove the people currently classified as independent contract workers, would that company still exist?"
Economist Chris Thornberg, founding partner of Beacon Economics, said the construction industry has a decent shot at convincing judges that many workers, such as plumbers and roofers, are independent. But gig companies, including Uber and Lyft, would have a harder time.
"You can't parse Uber from driving people from point A to point B," Thornberg said.
Business on 05/03/2018