Just a few hours before they were subject to a court order forcing them to transform all of their drivers from independent contractors to employees, a California appeals court spared the nation’s two largest rideshare companies from having to immediately overhaul their fundamental business models. The court blocked a San Francisco judge’s order from taking effect while it heard the companies’ appeal, handing the gig economy giants a much-needed reprieve. But it comes at a cost – the appeal was fast-tracked and will be played out at groundbreaking speed, meaning that we will be closer to a final answer to this momentous question sooner rather than later.
Gig economy companies received bad news yesterday when yet another federal appeals court ruled that delivery drivers – even independent contractors – can escape otherwise valid arbitration agreements. This is now the third federal appeals court to conclude that the “transportation worker” exemption in the Federal Arbitration Act should be read broadly enough to exempt typical gig economy workers, setting up a split in the circuits that has businesses operating across the country scratching their heads on how to proceed. What do gig economy companies need to know about the 9th Circuit’s ruling against Amazon.com?
Last week’s successful effort by California’s Attorney General to obtain an injunction forcing two ride-sharing giants to reclassify their drivers as employees may be the beginning of a trend that threatens to create a new normal for gig economy companies. Days later, the local district attorney in San Francisco filed a similar request in court seeking to force DoorDash’s independent contractors to be classified as employees. What does this August 12 move signal? Essentially, if you operate in a jurisdiction like California that has adopted the ABC test for determining worker status, you could be the next target of a government-initiated lawsuit that would aim to upend the very business model you have created.
A report by Ben Penn in Thursday’s Bloomberg Law casts serious doubt about whether the Department of Labor will proceed with a misclassification rule before the end of this presidential term. We reported last month that the July 1 regulatory notice issued by the DOL announcing an impending regulation for determining independent contractor status under federal wage and hour law was good news for gig economy companies. Such a rule would almost certainly provide a flexible standard permitting typical gig economy businesses to classify their workers as contractors under federal law. And the cherry on top was the news (also broken by Ben Penn at Bloomberg) that the agency was aiming to fast-track the rule to be completed by year’s end, insulating it from the possibility that a new administration voted into the White House this Election Day could quickly reverse course. But yesterday’s news casts a pall over this hopefulness and brings gig economy companies back to earth with the realization that we may not see such a proposed rule anytime soon.
In an op-ed appearing in today’s N.Y. Times, Uber CEO Dara Khosrowshahi echoes what we have been saying on this blog for quite some time – that it is time for federal and state lawmakers to tear down the existing regulatory structure forcing companies to select one of two binary choices for their workers, labeling them as either employees or contractors. He advocates for a “third way,” which would permit workers to retain the flexibility they crave while being eligible for benefits provided by the hiring entities they work with.
A California state court judge just handed a potentially groundbreaking loss to gig economy companies across the state by granting an injunction forcing the two biggest ride-sharing drivers in the nation to classify their drivers as employees. A silver lining in the August 10 decision by San Francisco Superior Court Judge Ethan Schulman allows the companies 10 days before the injunction takes effect, permitting them time to appeal the ruling and perhaps to convince a higher court to put the decision on ice pending the appeal. Here are the five takeaways you need to know about today’s critical ruling.
A federal appeals court just handed Grubhub – and gig economy companies in general – a pivotal victory by narrowly interpreting an exception allowing certain transportation workers (including independent contractors) to escape arbitration agreements. The 7th Circuit Court of Appeals joined a Massachusetts federal court by ruling that gig workers cannot avoid arbitration provisions by claiming they are exempt transportation workers. But what makes this ruling the most significant yet is not just simply because it came from a federal appeals court instead of a lower district court, but because of the wide-sweeping rationale used to justify the decision. What do gig economy businesses need to know about this ruling?
The gig economy is constantly evolving, becoming more deeply entrenched in certain areas of the economy while looking to expand into others. The COVID-19 pandemic accelerated this trend by forcing changes in the behavior of individuals and businesses that is certain to outlast the health crisis.
The formal regulatory notice released yesterday is so short and sterile that the average gig economy business could be forgiven for ignoring it: “The Department of Labor is proposing a regulation for determining independent contractor status under the Fair Labor Standards Act.” But the implications are immense. Given the manner in which the current administration has treated the misclassification question, yesterday’s announcement seems to be a signal that we will soon see a federal regulation that will provide a flexible standard permitting typical gig economy businesses to classify their workers as contractors under federal law.
In a budget deal finalized today and expected to be approved by state lawmakers in a matter of days, the California state legislature has reached an agreement that will see $17.5 million allocated toward enforcement of AB-5 in the 2020-2021 budget year. Unless the state law is radically revamped by voters through a November ballot measure, gig economy businesses can expect to be under the regulatory microscope by state enforcement officials for the foreseeable future. What can gig economy businesses expect given this development?