California Supreme Court building on 350 McAllister St., San Francisco, California, 94102 (Photo: Jason Doiy/ALM) 
 
 Updated on May 1 at 7:30AM PST 
 
 The California Supreme Court adopted a new worker-friendly standard Monday to determine a central question for gig economy companies whose business models depend on classifying workers as independent contractors rather than employees. 
 
 The court, ruling in the case Dynamex Operations West v. Superior Court, embraced a more rigid test than the current, looser standard for determining whether a worker is an employee or a contractor. The closely watched case presents significant implications for worker classification in the gig economy. Cases in state courts were paused in anticipation of the ruling. 
 
 Altshuler Berzon attorney Michael Rubin, who filed an amicus brief in the case in support of the workers, said the opinion “provides needed clarity to worker and employers alike, slicing through decades of confusing and inconsistent case law to focus on the key practical inquiry: where the worker ‘would ordinarily be viewed as working in the hiring business.’” 
 
 He added, “The result will be sweeping reclassification of workers throughout the state, including in the gig economy where much of the litigation has recently focused.” 
 
 A team from Littler Mendelson and McDermott Will & Emery represented Dynamex. Attorneys for the company did not immediately respond to a request for comment. 
 
 In the wage-and-hour class action, a Dynamex delivery driver named Charles Lee claimed he and his fellow workers were misclassified as independent contractors. At oral arguments, the lawyers in the case were asked to argue about whether California should abandon its current test for determining who is an employee or adopt a more worker-friendly standard. 
 
 Worker classification is a central issue in the gig economy. Many large companies, including Uber Technologies Inc. and Lyft Inc., are built on the backs of independent contractors. Employees, under the federal labor structure, are guaranteed collective bargaining rights, health care benefits and worker compensation. Gig companies contend their workforce enjoys more flexibility, setting hours and pace on their own. 
 
 Judges across the country have grappled in recent years with worker classification in the sharing economy. Grubhub prevailed in a trial over this issue of misclassification last year. The court sided with the company and found that the driver was an independent contractor. With that case now on appeal, it will now be governed by the new standard set in Dynamex. 
 
 “In recent years, the relevant regulatory agencies of both the federal and state governments have declared that the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenue and millions of workers of the labor law protections to which they are entitled,” the California Supreme Court said. 
 
 Rubin said there are likely hundreds of other misclassification cases pending that will be affected by the decision, including many in the gig economy. 
 
 The decision falls only under California law, but it follows a New Jersey Supreme Court decision. Several other states have more worker-friendly tests, in different forms, to determine how to classify an employee. Rubin predicted that more states are likely to follow suit, following the California decision. 
 
 “As the federal government increasingly abandons its past commitment to protecting workplace rights, the states are stepping up to fill the gaps,” Rubin said. 
 
 Dynamex argued that the current standard, in place since 1989, should be used. The older standard is a multifactor test that focuses mostly on whether the employer has control in the way the worker performs. It considers various other factors, including the worker’s skill, the method of payment and the nature of the business. 
 
 The lawyers for the workers successfully urged the California Supreme Court to embrace a so-called “ABC test,” which is used in New Jersey and Massachusetts. 
 
 That test requires the employer to establish three factors to show a worker is an independent contractor: ”that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work; that the worker performs work that is outside the usual course of the hiring entity’s business; and that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.” 
 
 The Supreme Court wrote: “It bears emphasis that in order to establish that a worker is an independent contractor under the ABC standard, the hiring entity is required to establish the existence of each of the three parts of the ABC standard.” 
 
 The plaintiffs were represented by A. Mark Pope of Pope, Berger, Williams & Reynolds and Kevin Ruf of Glancy Prongay & Murray. 
 
 ‘This could ruin the gig economy’ 
 
 Fisher & Phillips partner Richard Meneghello said the “ABC” test “makes it very difficult, if not impossible, for your average gig company to label its workers as contractors.” He wrote in a blog post that the “ABC” test essentially presumes an individual in question is an employee unless the employer proves three specific criteria. 
 
 Meneghello said the requirements would be nearly impossible for gig economy companies to comply with if they want to keep their workers classified as independent contractors. 
 
 “This could ruin the gig economy as we know it. After all, a great many of those providing services for gig companies—taking advantage of their idle capacity so they can fill a specific need and make some extra money—are handling these jobs as side hustles,” Meneghello said. “They are not running an independently established trade, occupation, profession or business. And moreover, how would a gig economy business confirm that their workers are meeting these standards?” 
 
 California companies, leading in the gig workforce model, should be thinking about the Dynamex case and any consequences, a team from Paul Hastings said in a recent blog post. In anticipation of the ruling, the lawyers recommended that companies look closely at worker relationships and to “take steps to assess their potential risk.” 
 
 Correction: An earlier version of this story misidentified the lawyer who represented the plaintiffs. ||||| The clash over classifying Uber drivers as independent contractors versus bona fide employees is the signature controversy of the on-demand economy. According to Uber, Lyft, and other on-demand driver companies, the independent contractor model offers the promise of a bright and flexible future in which each worker is a micro-entrepreneur—choosing her own hours and acting as her own boss. The problem, according to Uber detractors: these workers don’t receive benefits. And they can’t unionize. 
 
 But in Seattle, new legislation the City Council will vote on today could give these drivers a way to collectively bargain regardless of how they’re classified. Some call it the Voice for Drivers legislation, others the Uber unionization bill (not technically correct, since it applies to all of Seattle’s for-hire drivers, including taxis). Either way, the proposed bill appears to be the first of its kind in the nation: a clever workaround to a federal law that has so far prevented Uber and Lyft drivers from organizing and jointly negotiating on pay and working conditions. It’s Seattle’s bold plan to let its drivers form what would essentially be their own union. 
 
 ‘The drivers are now unified in saying, ‘This just doesn’t work for us.” Seattle Councilmember Mike O’Brien 
 
 “The drivers are now unified in saying, ‘This just doesn’t work for us,’” says Seattle Councilmember Mike O’Brien, who introduced the proposal in late August. 
 
 Meanwhile, Uber’s top politico, former Obama campaign guru David Plouffe, has called the proposal “flatly illegal.” 
 
 The Seattle vote comes at a time when the battle over on-demand worker classification is heating up. Recently, labor complaints filed against on-demand platforms for laundry, groceries, food delivery, and logistics have been piling up. In California, two landmark suits against on-demand ride-hailing services Uber and Lyft appear likely to go to jury trial. The lawsuit against Uber, which is further along, has already been granted class-action status, and a federal judge recently expanded its scope so that many more Uber drivers in California would be allowed to join. 
 
 A Forced Bargaining 
 
 Backers of Seattle’s proposed law claim it addresses low pay and subpar working conditions faced by drivers. If the legislation passes, it would allow drivers to create so-called Driver Representative Organizations, groups that would register as nonprofits in the state of Washington and must prove that a majority of drivers for a specific company have chosen to be represented by the organization. (As drafted, the drivers who get to vote would be those who have completed at least 150 trips in the 30 days before the commencement date set by the bill—which Uber contends is a very unstable population, given the rate of employee churn on its platform.) Yes, groups of drivers have gotten together in the past. They’ve formed “lounges” to get help and advice from other drivers (and commiserate in person), and formed groups such as the Apps-Based Drivers Association. (ABDA works closely with Teamsters Local 117 to ensure that drivers have shared resources.) But these groups can’t compel employers to meet and negotiate with them. 
 
 Uber’s top politico, former Obama campaign guru David Plouffe, has called the proposal ‘flatly illegal.’ 
 
 Things would be different with the new proposed law. Within 90 days of the formation of a driver-representative organization, the law would compel the unions and their employers to bargain for a new contract; and the city’s finance and administrative services department could impose a hefty fine on either party if they didn’t stick to the rules of the ordinance. 
 
 Essentially, the Voice for Drivers bill seeks to find a way around the National Labor Relations Act, enacted in 1935, which guarantees the rights of most private sector employees to organize into unions. Seattle labor attorney Dmitri Iglitzin, who helped council member O’Brien come up with the bill, says that while the Act doesn’t apply to independent contractors, it doesn’t bar state and local governments from enacting their own legislation that would allow independent contractors to organize. There’s precedent from groups in other sectors excluded from the Act that came together, Iglitzin points out, including the tens of thousands of state workers in Washington who formed a union to regularly negotiate with the government; and a California state law passed in 1975, which allowed agricultural workers to organize. 
 
 “The National Labor Relations Act does not preclude independent contractors from organizing,” says Iglitzin. “It simply does not give them any rights. That means another entity, like the City of Seattle, could give drivers those rights.” 
 
 According to the National Employment Law Project, a group that advocates for the rights of lower-wage workers, certain groups, including child care providers and home healthcare providers, are already allowed to collectively bargain in the state of Washington. NELP’s research shows that since home care providers obtained this right, the group has bargained for a doubling of pay, from an average of $7 per hour to $14 per hour, as well as paid-time off, workers’ compensation, health insurance, training programs, and their payroll taxes paid by employers. 
 
 For its part, Uber says that it’s up to the state, not any individual city, to carve out exceptions to federal labor law. What’s more, the company says any agreement reached by drivers via collective bargaining would not stand up under anti-trust scrutiny, because it would amount to price-fixing. 
 
 In an emailed statement to WIRED, Uber underscored the company’s ability to create flexible work for its drivers. “Uber is creating new opportunities for many people to earn a better living on their own time and their own terms,” the company said. According to Uber, half of drivers drive fewer than 10 hours per week, and more than two-thirds have full-time or part-time work outside of Uber. More than two-thirds also vary the hours they drive week-to-week. 
 
 Not Seattle’s First Battle 
 
 This is not Seattle’s first confrontation with Uber. Early last year, the city tried to limit the number of licensed drivers for ride-hail companies. Uber, employing a familiar tactic, unleashed its loyal user base to get a new ordinance approved that would remove the caps. Three months later, Uber won the skirmish. 
 
 But to hear city council member O’Brien tell it, this time is different. O’Brien says there’s been no organized backlash from Uber users on this ordinance—probably because the ordinance just makes sense to citizens. “I haven’t heard a single Uber driver testify, and I haven’t heard a single customer come and testify [against the ordinance],” says O’Brien. “In my anecdotal conversations with people who use these platforms, they say, ‘I love the service. But these drivers can’t be making a [proper] living.'” 
 
 O’Brien does say Uber will likely sue if the ordinance passes—which could stop it from being enacted if it gets tied up in the courts. But the political winds in the Pacific Northwest have blown in a worker-friendly direction recently. In 2013, the nearby city of SeaTac became the first in the US to approve a $15 minimum wage; New York and Pittsburgh eventually followed suit. Similarly, O’Brien says, there’s interest from other cities, most notably New York, to follow Seattle’s lead on organizing drivers. 
 
 “My sense [of users’ feelings] is ‘I’m OK paying a little more to make sure that it’s fair,” O’Brien says. “That’s why I don’t think there’s been the same backlash.” 
 
 Update 12/14/15 6:30 pm EDT: Seattle’s city council voted unanimously (8-0) to approve the bill allowing drivers for Uber, Lyft and other ride-hailing apps to organize. “The ordinance passed today threatens the privacy of drivers, imposes substantial costs on passengers and the City, and conflicts with longstanding federal law,” Lyft said in an emailed statement to WIRED after the vote. “We urge the Mayor and full Council to reconsider this legislation and listen to the voices of their constituents who choose to drive with Lyft because of the flexible economic opportunity it offers.” Uber did not add anything to its previous statement. 
 
 Update 12/14/15 9:15 pm EDT: Seattle Mayor Ed Murray has said he will not sign the Voice for Drivers bill, but under the City Charter, it will become law anyway. ||||| Many large companies maintain that they should not be required to bargain with employees of their contractors or franchisees, and that they should not be held liable for violations of those workers’ rights, if they exert control over the employees’ work conditions only in indirect ways, such as limiting what they can be paid for certain tasks. 
 
 The labor board explicitly rejected that logic. “It is not the goal of joint-employer law to guarantee the freedom of employers to insulate themselves from their legal responsibility to workers, while maintaining control of the workplace,” the Democratic majority wrote, addressing the purpose of the National Labor Relations Act. “Such an approach has no basis in the act or in federal labor policy.” 
 
 Wilma B. Liebman, a former N.L.R.B. chairwoman who wrote a crucial dissent in a 2002 case on the subject, said that the ruling was especially important because “sometimes the contractor is such a small entity, it exists on such a shoestring, that you have to get the lead firm to the table.” 
 
 The case the board ruled on involved a company called Browning-Ferris Industries of California, which the N.L.R.B. found was a joint employer of workers hired by a contractor to help staff the company’s recycling center. Unions are expected to seek to apply the ruling beyond the circle of companies that rely on contractors and staffing agencies, extending it to companies with large numbers of franchisees — even, some argue, to money managers who own significant stakes in corporations. 
 
 The joint employer designation could also make it easier to unionize in the first place. There have been instances in the past in which corporations appear to have terminated a franchise or contractor when that particular outfit was on the verge of unionizing, simply to avoid a union. This is legal for the corporation to do under existing law, but the franchisee or contractor cannot shut down on its own for this reason. As a joint employer, however, the corporation could no longer resort to this tactic. 
 
 “If you are a joint employer and you decide to shut down, there may well be liability,” Ms. Liebman said. 
 
 The ruling may have an immediate effect on a case the labor board is litigating against McDonald’s and several of its franchisees. In that case, the N.L.R.B.’s general counsel, who essentially acts as a prosecutor, asserts that the company is a joint employer along with a number of franchisees, making it potentially liable for numerous reported violations of workers’ rights, like retaliating against those who have tried to organize unions.
– 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.