Who’s an Independent Contractor in the New Economy?

ThinkstockPhotos-86492263Updated June 17, 2015: The California Labor Commission has found that a driver for Uber in San Francisco is an employee of the company.

Deciding whether to treat workers as employees or independent contractors is tricky in general and even more so in the context of the new so-called sharing economy. In recent decisions, courts have refused to resolve whether the drivers for Lyft and Uber should be treated as employees or independent contractors, leaving it for juries to tackle the question. And the answer could majorly impact the companies’ highly successful business model.

When determining whether someone is an independent contractor or an employee, California’s common law control test is substantially identical to the federal common law control test. The most important factor by far is the right to control the method and manner used to achieve the results desired. S.G. Borello & Sons, Inc. v Department of Indus. Relations (1989) 48 C3d 341, 350. But there are several other indicia of the nature of a service relationship, including:

  • Whether or not the one performing services is engaged in a distinct occupation or business;
  • The kind of occupation, and particularly whether, in the locality, such work is usually done under the direction of the principal or by a specialist without supervision;
  • The skill required in the particular occupation;
  • Whether the principal or the worker supplies the instrumentalities, the tools, and the place of work for the person doing the work;
  • The length of time for which the services are to be performed;
  • The method of payment, whether by the hour or by the job;
  • Whether or not the work is a part of the regular business of the principal; and
  • Whether or not the parties believe they are creating the relationship of employer-employee.

No single factor is decisive and the list is not exhaustive. Also, the fact that a certain amount of freedom of action is inherent in the nature of the work doesn’t change the character of the employment when the employer has general supervision and control over it.

In Ayala v Antelope Valley Press, Inc. (2014) 59 C4th 522, the supreme court noted that “[p]erhaps the strongest evidence of the right to control is whether the hirer can discharge the worker without cause, because ‘[t]he power of the principal to terminate the services of the agent gives him the means of controlling the agent’s activities.’” 59 C4th at 531.

The judges in the Uber and Lyft cases picked up on this point and noted that noted the fact that Lyft and Uber can “terminate at will” is “strong evidence in support of an employment relationship.”

But, as a recent Recorder article points out, independent contractors are also defined by their freedom to work their own hours and not be controlled by an immediate supervisor or manager, criteria that seem to fit most Lyft and Uber drivers.

It will be interesting to see how the juries decide this complicated issue. We’ll all have to stay tuned as old law is applied to the new economy.

To understand the tests for independent contractors and the issues involved, turn to CEB’s Advising California Employers and Employees, chap 3 and Drafting Employment Documents for California Employers, chap 4. On the procedure for contracting with one or more independent contractors or entering into three-party relationships, check out CEB’s Working With Independent Contractors, Leased Workers, and Outsourcing.

Other CEBblog™ posts you may find interesting:

© The Regents of the University of California, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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