GigSmart to Settle Unpaid Wages Lawsuit for $703,000

Who’s the boss?

GigSmart is a fast, low-cost staffing company that provides hourly workers to businesses. It advertises pre-vetted, reliable workers available at a moment’s notice without the formality of interviews or traditional hiring processes for companies in need of extra labor. These “shift gigs” are carried out by relatively low-skilled workers for hourly pay in industries like construction, warehousing, restaurant, landscaping, moving, delivery and retail. The business model is essentially an electronic cousin of the old-fashioned “shape up.”

GigSmart treats these shift workers as independent contractors. As alleged in McCracken v. GigSmart, a 2024 California class-action lawsuit, this means that the staffing agency does not:

• pay minimum hourly wages;
• pay overtime;
• reimburse business expenses;
• withhold taxes and other deductions, as required by federal and California law;
• provide Worker’s Compensation;
• provide timely and accurate wage statements; or
• provide meal and rest breaks.

Neither, apparently, do the companies for whom the shift gigs are performed.

Nobody does.

In theory, this is because these workers work for themselves; they are their own bosses. Freedom sounds great. The reality, though, is that it leaves these shift gig workers completely unprotected by California labor law.

Misclassification – it’s all about control

The issue is bigger than GigSmart. The misclassification of workers as independent contractors rather than employees has been a chronic problem with other app-based businesses including Instacart and Uber. California has attempted to solve the problem in several ways.

Historically, California courts have resolved the question of whether a worker is an employee or an independent contractor by examining who has the right to control the manner and means of accomplishing the work at issue. The greater the degree of control an employer exercises, the greater the likelihood is that a worker should be treated as an employee to whom the employer owes certain legal duties.

For example, the Fair Labor Standards Act applies an “economic realities test.” In other words, is the worker economically dependent on the employer for work or is she instead in business for herself? The factors to be considered include:

• the workers’ opportunity for profit or loss depending on managerial skill;
• investments by the worker and the employer;
• permanence of the work relationship;
• nature and degree of control;
• whether the work performed is integral to the employer’s business; and
• the skill and initiative required of the worker.

The problem with this test, however, is that it can generate inconsistent results.

In 2018, in Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court reformulated this test for purposes of California labor law and wage orders. The new “ABC Test” presumes that all workers are employees under California law, unless the hiring entity can conclusively establish all of the following elements:

(A) 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 and in fact; and
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) 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.

At the time, the decision was seen as a fundamental change in state law. A year later, in 2019, Governor Gavin Newsom signed AB 5, which codified the ABC Test as part of the California Labor Code. The law was effective as of January 1, 2020.

Proposition 22

After AB 5 took effect, the California Court of Appeals interpreted the law to prohibit Uber and Lyft from classifying their drivers as independent contractors. In response to the Court’s holding, voters initiated and passed Proposition 22, which was designed to “protect the basic legal right of Californians to choose to work as independent contractors with rideshare and delivery network companies.”

The reaction

Robert Reich, former Secretary of Labor, commented at the time that, “Prop 22 is great for employers, but it’s a huge loss for workers. This will encourage other companies to reclassify their work force as independent contractors, and once they do, over a century of labor protections vanish overnight.”

In its defense, representatives of GigSmart argued that, “there was really no way for us to know that it [the company] was going to run into such regulatory headwinds, because Uber had been out there for years.” California’s misclassification battles are clearly not over yet.