California Supreme Court whacks gig economy companies

A howl of anguish is coming from gig economy companies. They are squealing loudly in protest because their innovative disruptyness is being bigly hurt. Why? The mean California courts just said they can no longer pretend independent contractors are not employees. Oh noes!

California companies like Uber will now find it much harder to pretend their independent contractors are not employees. This welcome ruling from the California Supreme Court means these companies will now have to pay minimum wage, workers’ comp, unemployment benefits, and payroll taxes. Oh the horror.

The court put the proof of burden on the companies, saying independent contractors must meet all three criteria in the ABC Test. 1) the worker has freedom from control over how to perform the service, 2) the service is outside the business’s normal variety or workplace, and 3) the worker is engaged in an independently established role.

Companies like Uber fail all of them. The results could be devastating for them. Imagine, they will have to act and follow the laws like old-school not-disrupty companies have for decades. In short, Uber has always been the poster child for we don’t have to follow the rules belligerence and now it’s finally caught up with them, and many other companies too.

It may be true that Uber can hang on longer than some younger companies regardless, but the idea that Uber is “well funded” is a widespread misperception. At its current burn rate, Uber is out of money in a bit over two years, and panic and abandonment of the ship will likely set in sooner than that. Our Hubert Horan deems an IPO to be a pipe dream, given SEC disclosure requirements (Uber has gone to extraordinary lengths to make it impossible for investor to track financial results over time) as well as the lack of any prospect that the company can be profitable, save at a very small fraction of its current size.

“For employees I think it establishes a bright line test that is going to be beneficial for employees and for employers who want to comply with the law,” Pope said. The new standard puts the responsibility on businesses for proving the three parts of the ABC test, he said. “It’s the employer that has to meet the burden on each of those tests.”

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