Seyfarth Synopsis: Thinking of converting your independent contractors to employees? Not so fast. There are many implications to consider. Below we touch on one of them.

In the wake of the judicial invention of a California version of the “ABC test” to determine proper worker classifications, many companies in the gig economy are grappling with whether to reclassify their workers as employees rather than independent contractors.

While some may advocate for an automatic, across-the-board employee classification of all gig workers who might not qualify for independent contractor status under the applicable ABC test, these decisions can result in unanticipated consequences.

In determining employee classifications, one area often overlooked is the duty of loyalty—a hallmark of the traditional employment relationship. In most states, an employee owes a duty of loyalty to the employer. While the actual definition of the duty of loyalty varies by jurisdiction, the duty generally prohibits an employee from working for the employer’s competitors during the term of employment. In many jurisdictions, the duty of loyalty may also be extended beyond the term of employment, in the form of noncompete agreements.

For many gig workers, this aspect of the duty of loyalty is untenable. As compared to traditional employment, the lure of gig work is the ability to have multiple sources of income from various companies and the freedom to determine one’s own work schedule. But if a gig worker is classified as an employee, the ensuing duty of loyalty will often preclude the ability to work simultaneously for other companies that are in the same business as the employer (the employer’s competitors). For example, if the duty of loyalty applied, then employee rideshare drivers for Lyft could not take gigs with Uber, and vice-versa; and Grubhub drivers could not take gigs with DoorDash, and vice-versa.

As a result of the tension between the objectives of gig workers and the limitations arising from an employee’s duty of loyalty, classifying gig workers as employees can make recruiting more difficult in the gig economy. Employers in the gig space should give careful consideration to all of the issues implicated by worker classification decisions and the agreements that govern their worker relationships, including a decision to unilaterally release workers from their duty of loyalty, to ensure that the employer has removed a roadblock to recruitment. Employers may wish to consider releasing gig workers from certain aspects of the duty of loyalty—such as the duty to refrain from working for competitors—while preserving other aspects of the duty.

We are well-versed in the issues implicated by employee classification decisions in the gig economy and are available to work through these issues with employers who have questions in this area.