Recently, a California court made it more difficult for companies to designate workers as independent contractors instead of employees. By adopting an "ABC" test to determine worker status, the court found that people who performed duties within the "usual course" of a company's business may, in fact, be employees even if they are called independent contractors.
This is a major change, with far-reaching impact across California workplaces. Currently 1 in 5 workers in the U.S. is under contract. Within a decade, half of all workers are expected to be freelancers or contractors. The California ruling not only has implications for "on-demand" startups like Uber, but everyone making a living in the "gig economy."
Companies have different obligations to employees than independent contractors, including minimum wage payments, deduction of payroll taxes and coverage in the event of an on-the-job injury. This means employee workforces typically cost more than a fleet of contractors.
The ruling, therefore, may impact not only how businesses hire employees, but how insurance companies choose to provide coverage to employers. As discussed in a previous blog, there are many potential legal results from this ruling, in particular with regards to workers' compensation in California.
1. More People May Be Eligible For Workers' Compensation
In light of the court decision, much focus will be paid to the potential for rising health care coverage costs for an expanded workforce with employee status. However, an even bigger issue may be workers' compensation.
As it stands, simply calling a worker an independent contractor in California is not enough to exclude them from employee status for the purposes of accessing workers' compensation after an injury. With the ruling, it is even harder for businesses to call individuals carrying out the business' core function contractors.
2. Businesses May Not Be Prepared for Rising Costs
Greater access to workers' compensation can mean greater costs for startups whose labor force engages in injury-prone activities. Companies in the so-called "gig economy" offer everything from pizza delivery to ride-sharing.
While workers' compensation may matter little to a technology company, it can have a huge impact on the overheads of many of these labor-intensive organizations. In fact, they may not be prepared for the number of claims on their workers' compensation insurance, especially in the early stages when they have an influx of new employees doing primarily physical work.
3. Insurance Companies May Renegotiate Coverage
In California, employers must purchase workers' compensation insurance. They are required to provide workers' compensation benefits to all employees. However, the state does not mandate a particular type of policy other than that it must be purchased through a licensed agent.
As a result, insurance coverage can vary from company to company. With the potential increase in claims as the result of worker re-classification from independent contractor to employee, the insurance company may want to increase premiums or other aspects of the contract.
4. Workers Will Benefit From Greater Work Injury Protections
It is hard to see any scenario where employer costs will not increase after the court ruling. However, there is a clear benefit to workers. People putting effort into the "gig economy" will have greater protections.
Those working such temporary or piecemeal jobs may already be financially vulnerable, so are least able to afford a work injury. With access to workers' compensation benefits, they should be better able to weather these incidents.
If you are working as an independent contractor, it's important to understand your rights. If you have been hurt on the job, you may be able to access workers' compensation. California workers' compensation claim forms are available online here. You can read up on your rights here.
You do not have to apply for workers' compensation without assistance. If you have questions or if your claim was denied, contact a lawyer to be your advocate.