The California Supreme Court has issued a decision with major implications for Uber, the gig economy, and the question of worker classification more broadly.
In Dynamex Operations West, Inc., the court holds – for purposes of California wage orders (which govern minimum wages, maximum hours, and meal and rest breaks) – that the appropriate test for determining whether a worker is an independent contractor is the so-called ABC test.
Under that test, a hiring entity that wants to classify workers as independent contractors has the burden of establishing each of the following three things:
(A) that the worker is free from 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;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that 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.
All three factors are difficult for a firm like Uber to establish (my view is that they lose on all three), but the second prong ought to be impossible for Uber to satisfy. Meeting prong (B) requires Uber to prove that its drivers are performing work outside the usual course of Uber’s business. Since Uber’s business is all about providing transportation services to passengers, driving people is in the usual course of Uber’s business. Indeed, the only way Uber can win on prong (B) is to convince a judge that it is not in the transportation business, but is instead a technology company. Uber has been making this argument, but the appropriate response to it has already been offered. The U.K Uber tribunal, for example, called the idea “faintly ridiculous.” Judge Chen deemed it “fatally flawed.” As Chen put it:
Uber is no more a “technology company” than Yellow Cab is a “technology company” because it uses CB radios to dispatch taxi cabs, John Deere is a “technology company” because it uses computers and robots to manufacture lawn mowers, or Domino Sugar is a “technology company” because it uses modern irrigation techniques to grow its sugar cane. Indeed, very few (if any) firms are not technology companies if one focuses solely on how they create or distribute their products. If, however, the focus is on the substance of what the firm actually does (e.g., sells cab rides, lawn mowers, or sugar), it is clear that Uber is most certainly a transportation company.
Being a transportation company, Uber will fail to satisfy prong (B).
That means under the California Supreme Court’s test, Uber drivers are employees