Earlier in 2020 we authored an article[1] which addressed the issue of how governmental bodies on the Federal, State and local levels were treating delivery services, transportation services, food services and many other companies that hired workers and classified such workers as Employees (EE) or Independent Contractors (IC). This is sometimes referred to as the “Gig Issue.”
This classification is crucial to all of the areas noted, such as delivering goods and services, transporting people, and much more. Without attempting to overstate the importance of this issue, we commented in the earlier cited article:
“Recent cases and legislation may provide the death knell—or at least cause major changes—with regard to companies that have provided the delivery of people or products by using what has been labeled as ‘Independent Contractors.[2]’”
Our major focus at the time of writing the referenced article[3] was on the authority that was being issued by many courts and legislators that seemed to conclude that those transporting people (Uber, Lyft, et al) were to be treated as EEs.[4]
In California, this confrontation and split over how to treat Gig workers was recently addressed in a Case involving those workers driving delivery trucks to transport packages in California. This Case, Dynamex,[5] raised this Gig question. The case was decided in favor of treating the drivers as EEs. Such decision in turn created huge exposure and concerns for many other companies involved with Gig EEs delivering goods and people.
Companies such as Uber and Lyft realized that they could face fines, penalties and a good deal of increased costs in doing business in California, if the Dynamex Case conclusion as to who was an EE and who was an IC was applied to their companies. If such conclusion was reached that the drivers at Uber and Lyft were Gig workers that were to be treated as EEs, the cost to allow for sick time off, vacation pay, Federal, state and local taxes for EEs, retirement benefits, medical benefits, and much more would be too heavy of a burden for the companies to carry. Such positions being asserted by Uber/Lyft et al was no exaggeration when examining the exposure faced by these entities. Other states were also looking at the California decision as precedent for their assertions that these entities would owe additional taxes, interest, penalties, etc. As one example, the State of New Jersey already claimed that Uber owed the State over $650 million in taxes, interest and other charges by Uber’s failure to pay its obligations under the New Jersey law for EEs undertaking driving for Uber.[6] This same type of liability was being asserted by other states, too, such as NY.[7]
This position of a presumption that a Gig Worker was to be treated as an EE was contained in the recently passed California law under AB 5, its Opportunity to Work Act.[8]
Seeing the writing on the wall, Uber and Lyft gave notice to the State of California that they were about to terminate all of their transportation services in the State of California![9] Thus, because of the Dynamex decision and AB 5, California was faced with losing a major source of transportation for its residents; and, many drivers were faced with losing income from the Uber/Lyft type jobs. Further, many companies were concerned with how they would make deliveries and provide transportation.
The state of California blinked! A stay order was entered to prevent the enforcement of the Dynamex decision, pending a hurried initiative 22 that was placed on the ballot in California, allowing for a public vote on whether there should be an exception provided for some of the Uber/Lyft type companies to avoid being treated as Employers of drivers. The ballot issue to exempt some companies from the EE treatment was successful for such companies as Uber and Door-Dash Inc.
It seemed clear that if Uber (and others) were not successful in winning an exemption from the EE classification position, Uber would be damaged in the billions of dollars; and, possibly, Uber would be out of business, since their business modeled depends in huge part on the IC classification. Such proponents of the IC position spent over $200 million to support their argument for IC treatment.[10]
In our earlier article,[11] we provided for options that might have resolved the conflict that was gestating in California and other states as to Gig workers. One of those options was to provide special legislation to avoid Gig workers being treated as EEs. This option for legislation was the choice taken by the State of California to solve the then current conflict with Uber and Lyft. However, the issue remains as to when some workers will be held to be EEs and when such workers will be held to be ICs.
This issue of Gig Workers-- and if they are EEs or ICs-- exists not only in the US, but throughout the world.[12] It has been argued that many of these delivery and transportation type companies should never have had the advantage of treating their workers as ICs. This argument is supported by taxi companies that have long been taxed, among other entities, far more heavily than is the current case with companies such as Uber and Lyft. ( As we also mentioned in the prior article,[13] it is possible that many of these issues will become moot in this area, when Driverless Vehicles (DV) come into greater play in delivering goods and providing transportation for people.[14])
It remains to be seen where this Gig issue develops in other states and in other settings when there is the issue as to whether a worker is an EE or IC.
By
Dr. Mark Lee Levine,
Professor, University of Denver
[1] See Levine Mark Lee and Segev Libbi Levine, “Is the Worker and Employee or IC? Impact on Deliveries—and More,” 49, #1 Real Estate Review 13 (Fall 2020). [2] Id at page 13. [3] See supra Footnote 1. [4] See supra Footnote 1 along with many articles and cases on this point that originated out of NY, New Jersey, and California, among other states. See, for examples, Lydia Olson, Miguel Perez, Postmates Inc and Uber Technologies, Inc. v. State of Ca. See the article by Watson, Garrett, “Improving the Federal Tax System for Gig Economy Participants,” Tax Foundation (October 18, 2019). [5] Dynamex Operations West, Inc. v Superior Court, 416 P. 3d 1 (2018) [6] See supra Footnote 1 and see also Haag, Matthew and McGeehan, Patrick, “Uber Fined 649 Million for Saying Drivers Aren’t Employees (Nov. 14,2019). [7] Id. [8] See California AB 5, Opportunity to Work Act. [9] This position by Uber and Lyft, possibly to be followed by many other companies that involved Gig Workers, set the stage for California to face the loss of these important services for their constituents. Seeing the impact of these lost alternatives for transportation, California, as noted above, backed off its aggressive position—at least for now. [10] See this discussion and the import of the decision to Uber, Lyft, DoorDash, Instacart, et al in the article by Forman, Laura, “Uber and Lyft Victory Lap Risks Becoming Fleeting,” WSJ B12 (Nov. 5, 2020) [11] See supra Footnote 1. [12] For example, Uber has had conflicts on this and related issues in France, England and other countries. [13] See supra, Footnote 1, Note 32 in the article cited in Footnote 1. [14] See Levine, Mark Lee and Segev, Libbi Levine, supra Footnote 1, as to DV.