what is gig economy

Does it Matter Why You are Asking?

California courts make critical inquiries about the “gig economy” in a wide variety of contexts. Questions encountered include:

  • Who works for whom?
  • When?
  • Why are you asking?

Workplaces have changed dramatically, as more and more employers have determined that it makes economic sense to have many tasks completed by contractors, rather than full time or part-time employees. While some industries like “high tech” come to mind first, the practice of hiring independent contractors to meet broad sectors of company needs has become more prevalent in a wide variety of workplace settings.

Dynamex Operations West, Inc. v. Superior Court

In California, the answer to the question of “who works for whom” can be extremely consequential. The California Supreme Court, in its groundbreaking decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, 912–913, summarized some of the “first party” situations in which the answer to that question has impactful results.

“…[I]f a worker should properly be classified as an employee, the hiring business bears the responsibility of paying federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, providing worker’s compensation insurance, and, most relevant for the present case, complying with numerous state and federal statutes and regulations governing the wages, hours, and working conditions of employees. The worker then obtains the protection of the applicable labor laws and regulations. On the other hand, if a worker should properly be classified as an independent contractor, the business does not bear any of those costs or responsibilities, the worker obtains none of the numerous labor law benefits, and the public may be required under applicable laws to assume additional financial burdens with respect to such workers and their families.”

In that passage from Dynamex, the Supreme Court did not address one more critical consequence of that inquiry: where the worker whose conduct is at issue has been negligent, is his employer vicariously liable under the doctrine of respondeat superior?

The answer to that question starts with the consideration of the underlying purpose of the doctrine. Respondeat superior exists so that: “The losses caused by the torts of employees, which as a practical matter are sure to occur in the conduct of the employer’s enterprise, are placed upon that enterprise itself, as a required cost of doing business.” Lazar v. Thermal Equipment Corp. (1983) 148 Cal.App.3d 458, 464.

Should the answer to the query about whether one is (or is not) an employee depend upon whether the issue arises in a tort (respondeat superior) context, as opposed to a “first party” case involving worker’s compensation or labor law protection? A look at the existing legal standard, as applied in both contexts, gives some insight.

S. G. Borello & Sons, Inc. v. Department of Industrial Relations

The general rule is that the party seeking to avoid an employment relationship has the burden of proving that persons whose services they retain are not employees. S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 349.

Borello was a worker’s compensation case involving the employment status of farm workers; but the tests set forth there have been widely utilized to resolve respondeat superior inquiries as well. So consideration of that opinion is critical.

independent contractor employment caseBorello sets out the “right to control” test as the primary determining factor of employee status: “California decisions applying such statutes uniformly declare that ‘[t]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired…’” Id. at 350 (internal citation omitted).

Beyond this “right to control” analysis, Borello further instructs courts to look at a number of other factors in order to determine whether one is an employee of another. These factors include

  1. whether the one performing services is engaged in a distinct occupation or business;
  2. the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  3. the skill required in the particular occupation;
  4. whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
  5. the length of time for which the services are to be performed;
  6. the method of payment, whether by the time or by the job;
  7. whether or not the work is a part of the regular business of the principal;
  8. whether or not the parties believe they are creating the relationship of employer-employee.” Id. at 351

Borello points out that the control test may lead to different results in different contexts, noting that it: “must be applied with deference to the purposes of the protective legislation.” Id. at p. 353.

Later cases concur that the inquiry’s result might vary depending on how the court views the purpose of the inquiry. For example, in Sunderland v. Lockheed Martin Aeronautical Systems Support Co. (2005) 130 Cal.App.4th 1, 9 the court noted the potential for a different result, depending on whether a worker’s disputed entitlement to worker’s compensation is at issue, or whether respondeat superior is at issue.

“Workers’ compensation claims cover injuries without regard for fault, due to policy reasons designed to maximize the benefit of workers’ compensation to employees.

Conversely, respondeat superior claims are not as broad because they are claims made by third parties against employers, they do not arise out of the employer-employee relationship, and they do not involve the same policy concerns for making the standard a permissive one.” Id. at 10-11.

What is the ABC test?

what is abc testAll the comments above lead us to significant questions that will arise after the Supreme Court’s decision in Dynamex.

In Dynamex, in a labor standards protection context, the Supreme Court applied a new test for determining whether there was an employment relationship, adapted from other jurisdictions, to determine whether a worker is an employee, or an independent contractor. It is called the “ABC test.” The court explained it this way (Dynamex, 4 Cal.5th at 955–956):

“The ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (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 that involved in the work performed.”

After discussing the Borello standard at length, the Supreme Court in Dynamex concluded (contrary to all of the defendant company’s arguments) that application of the ABC test, instead of the multi-factor Borello standard, was preferable.

According to the Court, doing so: “…is faithful to its history and to the fundamental purpose of the wage orders and will provide greater clarity and consistency, and less opportunity for manipulation, than a test or standard that invariably requires the consideration and weighing of a significant number of disparate factors on a case-by-case basis.” Id. at 964.

Will the ABC test be applied by the courts in other legal contexts? Will it replace the multi-factor analysis of Borello in “third party” respondeat superior determinations as well? Will its ease of use catch on; or will the courts continue to reach differing results, under the same facts, depending upon why the independent contractor or employee inquiry is being made in the first place?

Counsel for Plaintiffs in personal injury cases will likely urge that the ABC test be adopted to resolve respondeat superior inquiries, since using it would lead to a finding of respondeat superior more frequently than using the multi-factor test of Borello. That sort of universal application may bite Plaintiffs back in some circumstances.

For example, use of the ABC test may lead to broader application of the affirmative defense of “special employment.” Tort claims of contract workers against their hirer might thus be more frequently barred, where the plaintiff is the worker, on the ground that he or she is found to be a “special employee,” under the ABC test. See, for example, Santa Cruz Poultry, Inc. v. Superior Court (1987) 194 Cal.App.3d 575, 581.

Applying existing legal concepts to the many issues that arise in the “gig economy” will be an ongoing challenge for the courts. Perhaps none will be greater than ascertaining who works for whom, and when; and whether “why” the question is being asked matters.

Ralph L. Jacobson

Ralph Jacobson received his law degree from Stanford University in 1969. His concentration has been in personal injury for over 30 years. He has written numerous articles for the CEB Civil Litigation Reporter, a leading professional journal for attorneys.