Google works hard to keep the 121,000 contractors it employs separate from its permanent employees. The two groups wear different colored badges, contractors are barred from some meetings, and they aren't provided employee perks such as health insurance and vacation time. The company apparently put these measures in place to make the status of its contractors as non-employees legally clear. Even so, it's still risking a major labor lawsuit in Google's home state of California.
Last December, contractors at Google sent an open letter to CEO Sundar Pichai, demanding the same benefits as full-time employees, and also to be included in company communications and meetings. These temps, vendors and contractors, "TVCs" in Google lingo, now make up more than half the company's workforce. Google employs about 102,000 full-time employees worldwide compared with its 121,000 contractors, according to a recent New York Times report. The TVCs are typically employed through a temp service or outsourcing company, meaning that Google does not employ them directly, giving it yet another layer of legal protection.
But that might not be good enough. According to several employment lawyers, the search giant is still at risk of a huge lawsuit in which the TVCs could claim they should properly have been classified as employees, at least within California.
The misclassification of employees as contractors is a common practice and a thorny issue that's led several large employers, including Microsoft, Federal Express, and Lyft to pay settlements in the tens and sometimes hundreds of millions. After a wave of such lawsuits in the 1990s and early 2000s, the federal government has relaxed enforcement of these rules.
But the state of California has moved in the opposite direction, tightening its policies about who is and isn't a contractor. In a watershed case last year, Dynamex lost an appeal to the California Supreme Court over misclassification of its delivery drivers. In its decision, the court laid out a three-pronged "ABC" test for determining whether someone working as a contractor is actually an employee instead. In this test, to be legally classified as a contractor, a worker must be outside the employer's control, perform work that is outside of the employer's usual business, and have a business or profession where that worker performs similar tasks for other clients. For the worker to legally be defined as a contractor, all three must be true--and the burden of proof rests with the company.
"The Dynamex decision should have caused every company in this state to reconsider, or at least review, their independent contractor engagements," declares Robert Dominguez, assistant general counsel and human resources consultant for human resources service company Engage PEO. "Post-Dynamex, California companies would be wise to adopt the default position that any individual they hire should be classified as an employee and the use of an independent contractor should be rare. And if your business relies on armies of independent contractors, chances are you are significantly exposed."
According to a Bloomberg report, contractors at Google serve food, write code, drive shuttle buses train artificial intelligence, and perform numerous tests of Google products. Whether Google could meet the outside-usual-business prong of the ABC test seems unclear. But since contractors make up well over half of Google's workforce, it could be tough to sell a judge on the idea that all these people are doing work outside of Google's usual activities. From the outside, it also looks unlikely that Google could pass the part of the ABC test that requires contractors to have a separate business of their own with other clients for whom they do similar work.
Is Google a joint employer?
Google seems to be well aware of the danger, which is why the company so carefully separates its TVCs from its regular employees, and why it leaves most communications with its contractors to be handled by whatever agency employs them. But even that might not be enough to protect Google from lawsuits by individual contractors, or even a huge class-action suit. "It minimized the danger, but Google can be deemed a joint employer with the agency especially if they maintain the employee as a temp contract employee for too long," says Angela Reddock-Wright, founder and managing partner of the Reddock Law Group, which specializes in employment law.
It will be interesting to see how this plays out, and whether the TVCs, having sent their letter and apparently gotten no response from Pichai, take the next step and initiate legal action. Of course, Google, which took on much of the publishing industry over its book scanning project, does not necessarily shy away from court battles. (During part of that lengthy case, I was president of the American Society of Journalists and Authors, which contributed amicus briefs to the case in support of Google's adversary, the Authors Guild.)
Meantime, in light of recent legal action around the question of contractors' legal status in the gig economy, it's worth reviewing your own policies when dealing with contractors. Contractors who work part-time, or away from your premises, could still be considered employees, depending on the work that they do and the particular rules of your state. Keep in mind that California is not the only state to use the ABC rule.
The Economic Policy Institute estimates that up to 20 percent of businesses are misclassifying at least one contractor who should be considered an employee. The potential liabilities could be huge, including back pay for overtime and penalties in the tens of thousands of dollars per employee.
Hiring people on a contract basis might bring savings on taxes and benefits, and give you more flexibility to cut those people's work hours or fire them if necessary. But you're likely to regret it if you wind up in court.
I've asked Google for a comment. If they provide one, I will update this piece.