Labor Rights in the 21st Century: Classifying Gig Economy Workers Under U.S. Labor Laws

Over the past decade, companies such as Uber, Grubhub, and TaskRabbit have disrupted pre-existing markets and transformed the dynamics of the U.S. economy. By developing Internet-based platforms, they have matched the skills of workers with the customers in demand for certain services, enabled workers to partake in short-term engagements, and established hands-off relationships between employers and workers. Changing the structure of the economy as we know it, these companies have given rise to the emerging “gig” economy, a labor market with over 600,000 U.S. workers that has flourished and only shows promising future growth.[1]

Despite its prosperity, the economy brings forth its own concerns. Perhaps the most pressing issue is assessing whether to classify gig economy workers as independent contractors or employees. If recognized as the former, employers such as Uber will have no liability to meet requirements under the Fair Labor Standards Act (FLSA), such as the minimum wage and overtime pay. If classified as the latter, however, these rights would be protected. This conflict has been met with a large number of interpretations. Razak v. Uber Technologies, Inc. (2018), for example, contends that gig workers ought to be considered contractors because they are not directly controlled by their employers, thus giving them agency in the manner in which they complete a task.[2]  Dynamex Operations West, Inc. v. Superior Court (2018), however, offers a more thoughtful interpretation, maintaining that these workers ought to be considered employees because they are central to the purpose of the business for which they work. [3]

While the classification of workers may seem like an unambiguous task, the process has become extremely convoluted due to the new hybrid of workers the gig economy has fabricated. For example, the Black’s Law Dictionary defines an ‘employee’ as “a person in the service of another under any contract of hire, express or implied, oral or written, where the employer has the power or right to control… the material details of how the work is to be performed”.[4] In contrast, an ‘independent contractor’ is one who “contracts to do a piece of work according to his own methods and is subject to his employer’s control only as to the end product or final result of his work.”[5] Unfortunately, these vaguely defined terms fail to address the dynamism of the U.S. economy, and have left unclear what happens when the two overlap.

Hand-in-hand with these definitions comes the long-established Common Law test, an assessment used by the U.S. court system to distinguish contractors from employees. This test uses factors such as the right to control, skill level, and employment affiliation to classify workers. According to the Berkeley Journal of Employment & Labor Law, however, “the multi-factored ‘common law’ test begs the question of employee status as much as answers it.”[6]. As a result, courts have been forced to expand the number of factors they use to distinguish employees from non-employee workers over the past 200 years.

This ambiguity has given way to a number of diverging interpretations. For instance, on April 11, 2018, the fate of thousands of Pennsylvanian gig economy workers was determined in Razak v. Uber Technologies, Inc.(2018). Three plaintiffs, Ali Razak, Kenan Sabani, and Khaldoun Cherdoud, filed a lawsuit claiming that Uber had violated the federal minimum wage and overtime requirements under the Pennsylvania Minimum Wage Act and the Pennsylvania Wage Payment and Collection Law. The question in place was whether the three men, and thousands of other Uber workers, were considered Uber employees, and thus entitled to these rights, or classified as independent contractors, stripping them of such entitlements and giving Uber immunity.

After careful deliberation, district judge Michael Baylson of Philadelphia ruled that because drivers of UberBLACK, the ride-sharing limousine service, were free to “nap, run personal errands, or smoke cigarettes between rides,” they were classified as independent contractors, not employees.[7] According to the definitions and tests in place, Judge Baylson’s ruling is not without merit. Because Uber drivers are not directly controlled by their employer, only contribute “to the end product of their work”, and do not satisfy every element of the Common Law test, they fit into the definition of an independent contractor, making the judgment legally sound. Although the ruling is legitimate, its implications are hard to digest. Without being recognized as “employees”, UberBLACK drivers are not protected under the Fair Labor Standards Act and Pennsylvania labor laws, meaning that they do not have a right to a minimum wage or an overtime pay rate, the very rights for which they were fighting.

While Pennsylvanian gig workers are being stripped of their entitlements, California’s workers share a different story. Prior to 2004, Dynamex Operations West, a nationwide delivery service, classified its workers as ‘employees’. However, in 2004, the company reclassified these same workers as ‘independent contractors’, presumably as a cost-effective measure as it was no longer responsible for fulfilling wage statements.

On April 30, 2018, in Dynamex Operations West, Inc. v. Superior Court (2018), the plaintiff, representing over 1,800 Dynamex drivers, argued that the 2004 determination violated California’s Industrial Welfare Commission Wage Orders, as there was no significant difference between the tasks workers performed prior to and after reclassification.

The California Supreme Court ruled in favor of the workers on the premise that the service Dynamex drivers provided was central to the purpose of the transportation company, distinguishing them from independent contractors. The Court further supported its judgment by claiming to acknowledge “contemporary work practices” and characterized Dynamex’s misclassification as an “unfair competitive advantage”.[8]  

To further reinforce its ruling, the Supreme Court cited Martinez v. Combs (2010), a case which had broadened the definition of “employ” to protect workers under joint employers. In the Dynamex ruling, the California Court found no reason for the Martinez definition to be limited to the joint-employer context and broadened its scope by establishing the “ABC” test. A “worker-friendly” test that presumes all workers are employees, the “ABC” test consists of three factors: (1) the worker must be out of direct control of the employer, (2) the subject of work the worker engages in must be independent of the employer’s central business, and (3) the worker is involved in other occupations or businesses.[9] If all three components are fulfilled, only then is the worker classified as an independent contractor.

There is no doubt that the newly administered “ABC” test is a seismic shift in the history of California labor laws. It increases the number of employers liable for properly classifying their workers and has the potential to expose faulty companies for failing to pay federal Social Security and payroll taxes and violating regulations on wages, hours, and working conditions. While the Dynamex case is only limited to the California Wage Orders, it establishes an overarching independent contractor test, mandating Californian agencies to be “ABC” compliant or face potential litigation.

The Dynamex ruling provides a thoughtful interpretation that broadens the definition of a modern-day “employee” and protects thousands of gig economy workers. Despite its significance, Dynamex solely protects Californian workers, leaving conflicting rulings such as Razak to paint a hazy picture of the gig economy’s future on a national level. In order to ensure the nation-wide protection of gig workers, courts must look to contemporaneous precedents and develop statutes that take the increasingly dynamic economy into account. Ultimately, the unrivaled solution to this dispute involves amending current legislation, a lengthy political process that we can hope to anticipate from state and federal legislatures in the future.

Sources:

[1] Kennedy, Joseph V. Three Paths to Update Labor Law for the Gig Economy. PDF. Information Technology & Innovation Foundation, April 2016.

[2] Razak v. Uber Technologies, Inc., No. 16-573 (U.S. District Court, 2018).

[3] Dynamex Operations West, Inc. v. Superior Court, No. S222732 (California Supreme Court, 2018).

[4] Garner, Bryan A., and Henry Campbell Black. Black’s Law Dictionary. St. Paul, MN: Thomson Reuters, 2016.

[5] Ibid, 4.

[6] Carlson, Richard. Why the Law Still Can't Tell an Employee When It Sees One and How It Ought to Stop Trying. PDF.Berkeley Journal of Employment & Labor Law, September 2001.

[7] Ibid, 2.

[8] Ibid, 3.

[9] Ibid, 3.