Photo: Daniel Hertzberg for ALM.

LimeBike's so-called “juicers”—workers who scoop up the signature green and yellow electric bikes and scooters wherever they've been left and make a buck charging them up—represent the novel, now-thriving business model in the gig economy that relies on independent contractors.

LimeBike, which rents scooters in cities across California and dozens more around the world, once recruited “juicers” on its website, proclaiming the San Francisco-based company was “Always looking to grow our team.”

But documents filed in a lawsuit in San Francisco Superior Court against Neutron Holdings Inc., which does business as LimeBike, claim the company stripped the representation from its website.

Why the seemingly innocuous phrase was removed could reflect the wave of lawsuits filed against gig economy companies and the types of big questions that companies are struggling with after a California Supreme Court decision in April made it harder for employers to classify workers as contractors.

The court's decision has rattled companies and forced state and federal courts to grapple with unresolved questions. Meanwhile, plaintiffs attorneys find themselves with more leverage to argue against workforce structures that label workers as independent contractors and not employees.

The implication that Lime's juicers are part of the company's “team” could clash with the new worker-classification scheme, known as the “ABC test,” that was created in the California court's ruling in Dynamex Operations West v. Superior Court. One of the prongs—known as the “killer B” by some management attorneys—only allows a worker to be classified as a contractor if the work he or she does is outside the scope of the company's business.

“Lime still has the mindset of a startup,” said Korein Tillery's Garrett Broshuis, an employment attorney based in St. Louis who is following the case. “An innovative system may get praise in business school, but it can't ignore requirements of California law.”

➤➤ Get employment law news and commentary straight to your in-box with Labor of Law, a new Law.com briefing. Learn more and sign up here.

On its face, the “B” prong in the classification test is the most difficult to overcome for gig economy companies that have built their business models on the backs of independent contractors who enjoy greater flexibility but miss out on many of the benefits accorded to employees.

“The lawsuit itself is attacking the myth of the gig economy that these workers are receiving flexibility and the ability to work several jobs. They can't,” said Gay Grunfeld, managing partner at Rosen Bien Galvan & Grunfeld in San Francisco, which is representing the Lime plaintiff with the Chicago firm Waskowski Johnson Yohalem. “The Dynamex decision squarely applies here.”

Littler Mendelson shareholder Lisa Lin Garcia in San Francisco, who represents Lime, did not respond to request for comment.

The new California test also requires the employer to establish that a worker is free from the control and direction of the hirer in connection with job responsibilities. And an employer must show that a worker is “customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.”

Erin Leach, a management-side attorney at Snell & Wilmer, said companies in California are re-evaluating whether their workers should be part-time employees instead of contractors, diving into their internal and external communications and working to comply with the state's more rigid classification test.

“How narrowly can you define what your business is?” Leach said. “We are left with a lot of open questions of how this ruling will be applied.”

A Littler paper in June, assessing the Dynamex decision, said that it's not always clear how a business is defined. “The court provides a couple of overly simplistic examples that belie modern business reality.” The paper suggests that the new standards will be difficult for companies to overcome.

Gig economy businesses are getting hit the most first from the early onslaught of lawsuits, Leach said. Still, large companies are not racing to change their workers' status en masse as cases play out in state and federal courts.

In a case pending before the U.S. Court of Appeals for the Ninth Circuit, GrubHub, represented by a team from Gibson, Dunn & Crutcher, is battling a former worker who lost in a federal trial court in a classification lawsuit. Now, that trial verdict is in question. The judge who presided over the case recently declined to say whether the Dynamex ruling should apply retroactively.

Meanwhile, Uber Technologies, Inc. was sued by competitor Diva Limousine Ltd. in federal court. The case, brought by the plaintiffs firm Keller Lenkner, argues Uber is saving hundreds of millions of dollars by classifying their drivers as independent contractors.

A California Appeals Court also ruled that Dynamex only applies to wages cases and not the myriad other labor disputes companies face, said Tammy McCutchen, a Littler shareholder and former administrator of the wage and hour division at the U.S. Department of Labor.

McCutchen warned during a recent webinar that “independent contracting is under attack.” Citing the new California classification test and a host of other state standards, McCutchen said “100 percent compliance is impossible.”

“Much of our social contract is for employees,” McCutchen said, noting rights for minimum wage, overtime, family and medical leave and workplace safety. “Independent contractors are not protected by any of these laws. That's why it remains a front and center critical issue.”

Broshuis predicted the movement in California to bolster rights of independent contractors will be influential across the country. He also noted that lawsuits were filed and fought long before the Dynamex decision.

“The ruling gives more credence to these attempts, but we will continue to see more of them filed,” Broshuis said.

 

Read more:

Grubhub Trial Judge Leaves Big Labor Question Unresolved Amid 'Dynamex' Dust-up

Plaintiff Asks Judge to Classify Uber Drivers as Employees Under 'Dynamex'

Calif. Supremes Embrace Worker-Friendly Classification Test.