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Friday, September 13, 2019
/ 06:24M / By Angel List /
Header Image Credit: Uber Eats
The gig economy
might be in trouble-at least in California.
On Wednesday, California's state legislature
passed a bill that changes the criteria for independent contractors. Now, for a
company to classify a worker as an independent contractor, it must prove three
things (you may hear this being called the "ABC Test"). If they can't, then the
worker is treated as an employee.
First, companies must prove "the worker is free
from the control and direction of the hiring entity in connection with the
performance of the work." In other words, companies can't manage contractors
the way they would employees.
As an example, if a
catering hall contracted a chef to prepare food events, but controlled how the
chef prepared the food-giving them custom orders from customers, giving a
strict schedule for production, and instituting standard procedures-they would
likely not satisfy this part of the test.
Second, companies must prove "the worker
performs work that is outside the usual course of the hiring entity' business." This means a company like Uber has to prove that driving users from
location to location is outside the company's usual course of business.
Uber said as much
in a press release, contending that the company is actually a "technology platform for
several different types of digital marketplaces."
Third, the companies must prove "the worker is
customarily engaged in an independently established trade, occupation, or
business of the same nature as the work performed." For example, an electrician
doing contract electrical work is still a contractor. It's unclear if ride
sharing or meal delivery companies will be unable to clear this bar.
The gig economy has provided the backbone of
countless startups' business models-hence the much-used "Uber for X" tagline.
Under this new law, all of these contractors could earn employee status if the
companies can't satisfy the ABC test-which greatly increases the company's
overhead. Worker's compensation, benefits, tax implications-it would be a
serious reshaping of these companies' finances.
If California's law inspires similar legislation
across the country, it could deal a serious blow to the entire gig economy.
Bradley Tusk, president of Tusk Ventures and Uber's first political strategist,
told The Verge, "A domino effect [is] not just possible, it's all but
guaranteed."
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