An unprecedented move by the California Supreme Court left the gig economy in shambles on Monday. The court ruled that employers based in the economy must shift their hiring model, and treat workers who carry out ‘work related businesses as full-time employees. This ruling is deemed to have far-reaching consequences for companies such as Uber and Lyft, which for years have thrived under the previous work-model.
New Ruling set to restructure the playing field
So here’s exactly how the new ruling is expected to transform things. For example, suppose the owner of a pet shop hires a plumber to come fix one of their leaking sinks. In such a situation, the plumber would not be considered an employee of the pet shop because his or her trade is in the plumbing business. However, if the pet shop pays someone to breed pets at home, then the person would be known as an employee, entitled to the same benefits befitting an in-house hire; such as minimum wage and work breaks.
Though the ruling currently only affects the delivery company Dynamex, it could start a revolution in California that could ultimately affect other states as well. In fact, the ruling could affect workers such as hair stylists, care givers, and most importantly, Uber drivers.
In fact, it is projected that the number of employment lawsuits will skyrocket in the coming of days.
Though the decision is monumental, it will not affect employers residing outside of California. That means that Uber drivers working in New York will still be deemed as contractors of the company, unless the State decides to follow a similar route as California.
Spark a revolution
However, the new ruling could have a major impact on the nation’s largest state; which is currently home to thousands of gig-based companies.
However, the big question on everyone’s lips is whether these gig-companies will have the financial muscles to hire all their past contractors as fully-fledged hires; not to mention handle the payroll taxes and excess expenses that come with transforming contractors into employees?
Because looking at the nature of the situation, converting a contractor into an employee could increase an employer’s costs by up to 40 percent!
An evolving market
Recently, gig-economy companies have also had the share of dreams turned into nightmares. Plus things have only gotten worse for companies such as Uber, which has been losing clients in the thousands as Technology Dreamer shows how.
Uber, also lost a whopping $1.1 billion in just the fourth quarter of last year alone. Another example is how gig-companies such as Sprig and Shyp are now operating on thin margins and have had to change their business models simply because they could not afford transforming contractors into employees.
That being said, some starters have ditched Uber’s work model and have proactively began treating their workers as employees.
Other companies, such as Checkr, are looking to do away with the activities of performing pre-employment background checks on employees.
In response, Dara Khosrowshahi, the new CEO of Uber, would like the company to take things slow at first as they begin to test a new business model.