There was big news out of California this week that will impact the business model of Uber and Lyft, ride sharing companies who employ their drivers and their vehicles as “independent contractors.”

This employer — employee independent contractor relationship is critical to the business model of both Uber and Lyft.

The issue of whether an employee is a direct employee or an independent contractor has been around for a long time. Long enough that something called the “ABC Test” has been formulated as a way to resolve the nature of the employee relationship.

The ABC Test goes like this:

 1. Is the worker free from the control and direction of the employer (called the “hiring entity” amongst the legal literati)?

 2. Does the worker  perform work for other hiring entities outside the scope of this particular hiring entity’s business?

 3. Is the worker regularly engaged in an “independently established trade, occupation, or business of the same nature as the work performed for the particular hiring entity?”

Uber believes their drivers are independent contractors. If you imagine that a driver works for both Uber and Lyft, the idea that they are an independent contractor is not all that far fetched. But, read on, dear reader. Nothing is ever that simple.

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