THOUGHT LEADER


The ‘Gig Economy’— New Rules, New Risks for Districts


Written By Gregg Prettyman N


ew legislation has significant implications for school districts that contract with com- panies that use independent contractors. Lately, the on-demand transportation sector


seems to be in the legislative and regulatory crosshairs. It is therefore critical for school administrators to under- stand the potential impact to their student transportation programs and to formulate an action plan. Companies that use independent contractors to pro-


vide services like on-demand transportation are part of the “gig economy.” That term has typically been used for musicians to describe short-term, temporary work. Gigs have become popular, thanks to technology that con- nects drivers with passengers 24/7. Following new California Supreme Court rulings and


the recent passage of California Assembly Bill 5, howev- er, many legal commentators and industry experts have questioned the legality of any business or transportation model that uses independent contractors. These developments signal that the continued reliance


on independent contractors to provide services creates tremendous risk. There is added risk to entities that con- tract directly with those individuals, third-party groups like school districts, and the firms they contract with that also use independent contractors. Indeed, some people believe that a third-party


contracting agency such as a school district, may face potential liability as a co-employer of workers who are improperly classified as independent contractors.


Brief History of Recent Gig Economy Legal Rulings For context, it’s important to understand three key inde-


pendent contractor workforce court decisions that affect the gig economy. The California Supreme Court’s deci- sion in Dynamex Operations West, Inc. v. Superior Court (2018) ushered in new standards to determine whether California workers should be classified as employees or independent contractors by using the “ABC” test: Part A: Is the worker free from hiring entity control and direction of work performance, both under the con- tract for the performance of the work and in fact? Part B: Does the worker perform duties that are out-


side of the usual course of the hiring entity’s business? Part C: Is the worker customarily engaged in an inde-


pendently established trade, occupation or business? Failure to prove all three elements determines that the


22 School Transportation News • NOVEMBER 2019


worker is indeed an employee and not an independent contractor. Labor attorneys and their clients who claim misclassification as independent contractors can and will use the ABC test to prove that they are employees and that they are entitled to file claims against their “employer.” They could assert that the company failed to reim- burse necessary business expenses, provide accurate and complete wage statements, pay unemployment in- surance tax, and offer worker’s compensation insurance. California adopted this ABC test on April 30, 2018. Sev-


eral lawsuits that apply this ruling both retroactively and proactively are already in the courts.


Assembly Bill 5 & the ‘Co-Employer’ Ruling The legislation that passed this past September and


goes into effect on Jan. 1 addresses the Dynamex legal decision. The law specifies new guidelines to reclassify contractors into employees, based on if the worker per- forms tasks under control of the company, those tasks are principal to that company’s business, and the worker doesn’t have an independent enterprise in that trade. Companies that use independent contractors and


ignore the above-listed considerations may now be in violation of court rulings and California law. Those firms face not only financial ramifications but also potential criminal sanctions. This currently applies to California companies only, but the potential exists for other states to pass similar legislation. The California Supreme Court in Martinez v. Combs (2010) established the legal precedent of the “co-employ- er” issue. The court gave independent contractors a wider net to cast when suing for unpaid wages. The Supreme Court held that any party that suffers or permits another to work may be liable as a co-employer. For example, some legal experts have suggested that a third-party contracting entity, such as a school district, could face potential liability as a co-employer for another entity’s improperly classified independent contractors.


Implications for Transportation Companies & School Districts? Two of the largest and most well-known, on-demand


companies have a policy of not transporting children under 18. This decision opened the door for other trans- portation companies to fill the “rideshare for minors” void. Many firms have aggressively approached school districts,


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