A new ruling from the California Supreme Court might mean big trouble for the business model of companies such as Uber and Lyft. The upshot is that Monday's decision makes it harder for companies to classify employees as independent contractors, reports the Los Angeles Times. "This could ruin the gig economy as we know it," is one quote from an attorney not involved in the case cited in a report at Law.com. "It’s a massive thing—definitely a game-changer that will force everyone to take a fresh look at the whole issue," is another collected by the New York Times. The court applied what's known as the "ABC test" to determine who qualifies as an independent contractor. This Cornell Law blog post has details on the criteria, but it boils down to this: If the worker performs a task that is part of the "usual course" of the company's business, he is an employee, not a contractor.
The court provided examples: If a store hires a plumber to fix a leak, the plumber is an independent contractor. But if a clothing company provides material and patterns to a seamstress who sews dresses in her home, the seamstress is an employee. In its ruling, the California court followed the lead of the top court in New Jersey, but the California decision is expected to have a far greater impact because companies such Uber and Lyft are headquartered there. As Law.com notes, similar cases in other state courts were on hold waiting for the California decision. "A huge number of businesses will be calling their lawyers saying 'What should I do?'" a professor at the USC Gould School of Law tells the LA Times. The ruling came in a lawsuit against a package and document delivery company called Dynamex that was accused of misclassifying drivers as contractors. (Read more California Supreme Court stories.)