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Ruling By California Supreme Court Could Hurt Gig Economy

Written by Nitish Singh
Published on May 2, 2018

The California Supreme Court dealt a big blow to the gig economy on Monday that could affect not only big companies like GrubHub and Uber but also to small employers. The court ruled that the employers must treat workers as full-fledged employees.

According to the ruling, any worker who is involved in the daily course of business should be treated as a full-fledged employee. Gig based jobs often involve workers who offer their services for a fee on a per-gig basis. With the new rules in place, such workers will need to be registered as full-fledged employees and are required to have access to minimum wage, breaks, and other benefits of employment.

Uber

Image Courtesy of Gravity Inc

While the ruling is set to apply to delivery company Dynamex, it sets a precedent that can affect various types of workers. Eve Wagner, founding partner of Sauer & Wagner LLP mentioned the ruling can potentially affect caregivers, dog walkers, hair stylists, and, of course, drivers for Uber and other gig economy companies that are based in California. She expects the number of lawsuits to explode following the ruling.

The decision does not affect people outside of California but if other states want to follow California’s example the gig economy could be affected greatly. Gig economies are already facing troubling economics. Uber lost $1.1 billion in Q4 2017 according to the Wall Street Journal and other companies that have tried to convert contractors to employers have failed or changed their business models. Gig based companies operate on very thin margins and it is unlikely they can afford what the California ruling has set in motion.

Payroll taxes and other expenses that are associated with converting contractors to employers are high and can increase costs to employers significantly. Companies like Uber and GrubHub have declined to comment on the situation and we are yet to see how major gig companies are planning to approach the situation.



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