Subpoenas Start To Fly In Wake Of Gig Economy Ruling

And here come the subpoenas ….

This week, Uber and Lyft were told by San Francisco City Attorney Dennis Herrera to “turn over records on whether they classify drivers as employees or private contractors, as well as records on driver pay and benefits,” according to a statement from his office.

The move comes as a result of the recent decision from the California Supreme Court that said gig economy companies can’t count workers as independent contractors instead of employees. The ruling is not only widely viewed as a blow to companies that take part in the gig economy, but could influence how franchisors operate, according to at least one source.

Herrera said the subpoenas he sent to those two major ridesharing firms represent the latest part of his investigation into whether such companies “comply with San Francisco ordinances.” The statement continued, “In light of the California Supreme Court’s decision that companies must affirmatively prove a worker is an ‘independent contractor’ before denying that person the wages and benefits guaranteed to California employees, Herrera seeks proof that Uber and Lyft have lawfully classified drivers as independent contractors or provide their drivers with minimum wage, sick leave, health care contributions and paid parental leave.”

The impact of the ruling, and the product of investigations such as the one in San Francisco, could force ridesharing companies to change their business models. A recent analysis in The New York Times found that classifying gig workers as employees could add up to 30 percent to those companies’ expense columns. In return, those companies could gain more control of workers’ schedules.

As gig companies and workers watch how this all plays out, payment issues are taking more of the spotlight when it comes to the sort of temporary work that sustains not only Uber and Lyft, but a host of other operations. According to the new Gig Economy Index from PYMNTS, the gig economy has expanded well beyond rideshares and home repairs, and the occasional need for extra cash. The Index found that nearly 40 percent of the U.S. workforce earns at least 40 percent of its income from gig work. Those numbers are influencing all facets of the gig economy. The most recent edition of the PYMNTS “CEO Conversation Series,” for instance, took a deep dive into how spending management technology can better serve gig and freelance workers.

Neither Lyft nor Uber responded to a request for comment about the investigation in San Francisco, though Lyft did issue a statement this week to other media that said the company has a “long track record of working collaboratively with policymakers, including the SF City Attorney, on important issues.”

The California Supreme Court ruling — commonly referred to as Dynamex — could have implications beyond the gig economy, according to commentary this week in Forbes by Tony Marks, an attorney with Bryan Cave Leighton Paisner LLP who has a specialization in franchise law.

He wrote, “As commentators and others evaluated the scope of the case, its potential application to more types of independent contractor relationships, including franchises, became clear.”

Under the new guidelines in the Dynamex ruling, an employer must meet three criteria to classify a worker as an independent contractor. One of them says that if a worker “performs work that is outside the usual course of the hiring entity’s business,” that could lead to a determination under the new guidelines that the worker is an independent contractor instead of an employee, Marks wrote. Though Dynamex did not address franchise relationships, Marks wondered if the rule he quoted could be used to change those relationships in subsequent cases.

“In many franchises, it is the franchisor’s expertise in the licensed business — whether running a pizzeria or frying chicken — that attracted the franchisee in the first place,” he wrote. “Many franchisors sell pizzas or fried chicken, just as their franchisees do. Does that mean that the ‘B’ factor is negated, turning all franchisees and their employees into the employees of the franchisor?”