New California Regulation Threatens to Upend Uber’s Business Model and Ruin the ‘Gig’ Economy

This is why America can’t have nice things.

In a ruling with potentially sweeping consequences for the so-called gig economy, the California Supreme Court on Monday made it much more difficult for companies to classify workers as independent contractors rather than employees.

The decision could eventually require companies like Uber, many of which are based in California, to follow minimum-wage and overtime laws and to pay workers’ compensation and unemployment insurance and payroll taxes, potentially upending their business models.

As a California resident, I am appalled by my state’s dedication to absolutely ruin our state.  Uber is one of the best, most innovative companies to come around.  And it will face challenges related to automated driving that will invariably come up in the ensuing months.  Adding unnecessary government regulations to technological challenges is about as unAmerican as it gets.  It’s unAmerican, but it’s oh-so-Californian.  Here’s more from TaxProfBlog:

Industry executives have estimated that classifying drivers and other gig workers as employees tends to cost 20 to 30 percent more than classifying them as contractors. It also brings benefits that can offset these costs, though, like the ability to control schedules and the manner of work. …

The court essentially scrapped the existing test for determining employee status, which was used to assess the degree of control over the worker. That test hinged on roughly 10 factors, like the amount of supervision and whether the worker could be fired without cause.

In its place, the court erected a much simpler “ABC” test that is applied in Massachusetts and New Jersey. Under that test, the worker is considered an employee if he or she performs a job that is part of the “usual course” of the company’s business.

By way of an example, the court said a plumber hired by a store to fix a bathroom leak would not reasonably be considered an employee of that store. But seamstresses sewing at home using materials provided by a clothing manufacturer would probably be considered employees.

In addition, a company must show that it does not control and direct the worker, and that the worker is truly an independent business operator, not just classified that way unilaterally.

While companies like Uber have had some success arguing that they don’t exert sufficient control over drivers to be considered employers, it would be hard to assert that drivers are performing a task that isn’t a standard feature of their business.

Which is better for employees?  It’s a complicated tradeoff.  Many contractors have found the flexibility of contract work perfect for their lives.  And employers appreciate the lower costs associated with contract work. But that’s the great thing about America — people are not forced to accept contract work and can shop around for different work.  Uber is not the equivalent of the coal mines in the 1930s.

It seems that my state is hell-bent on destroying everything about it that makes it amazing.  If I were the President of Uber, I’d be packing my boxes.  In fact, I’m not the President of Uber, and I’m looking to do just that… along with thousands of other residents sick of the government strong hold.

Image Credit: Flicker by Mark Warner

Hat Tip:TaxProfblog