A law passed in September by the state of California in the United States assumes that a person providing services for consideration should be considered an employee of the contracting company unless the company demonstrates that all of the following requirements have been met:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

This verification system is known in the U.S. as the ABC test.

As stated in its article 1, Assembly Bill No. 5 is intended to expand the rights assured by the California Supreme Court in the case Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal. 5th 903 (2018) to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers’ compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave.

As a result, there has been much debate about the effects of this law on the business of companies that aim to connect customers to service providers (digital platforms) and on the business model on which the shared economy (known as the gig economy) is based.

This discussion has generated repercussions even in Brazil: scholars contrary to the business model of the gig economy believe that, if applied here, the California law would make the business of digital platforms unviable, since the service providers that use them to connect with customers would automatically be considered employees of the platforms.

In our view, however, this is not true because, if introduced into the Brazilian legal system, the law passed in California would add nothing new to the Brazilian reality. In fact, Brazilian Labor Laws (CLT), in articles 2, 3, and 9, provide for, ever since they were promulgated in the 1940s, the concepts introduced by this U.S. state’s law. This is what this article proposes to address below.

A person is presumed to be an employee when not free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.. In other words, employees are those who render services to the contracting party under legal subordination, as is already the case in Brazil.

Legal subordination is essential for establishing an employment relationship. The new California law makes reference even to the importance of factual circumstances, as occurs in Brazil, based on the principle of substance over form, whereby factual reality is essential for a review of the specific case. These concepts have been widely applied by the Labor Courts for decades.

Second, an employee is presumed to be a person who performs work that is inside the usual course of the hiring entity’s business. This requirement may be interpreted from the point of view of both structural subordination and through the prohibition of outsourcing of a core activity. In other words, a person is presumed to be an employee when providing services found in the organizational structure of the contracting company, as occurs in Brazil based on the structural subordination theory, or when the person provides services related to the contracting company's core activity.

Regarding structural subordination, although this theory is a minority view, there are decisions in Brazil that recognize its applicability in conjunction with legal subordination. This theory has even been used by the Labor Courts in reviewing cases filed by service providers against digital platforms involving claims of an employment relationship. However, it has not prevailed when legal subordination is absent.

As for the prohibition on outsourcing of core activity, this interpretation also has its application softened in Brazil due to the recent decision by the Federal Supreme Court (STF) to recognize the legality of outsourcing of any type of activity, including the core activity of the contracting company.

Persons are presumed to be employees when not usually engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. Regarding this point, although exclusivity is not a requirement of employment relationships in Brazil, it is considered an important factor in reviewing the specific case, in conjunction with the review of other requirements for an employment relationship, especially subordination.

Finally, the presumption that there is an employment relationship as provided for under California law is also well established by Brazilian case law, as it is the burden of the company to prove failure to meet the requirements of an employment relationship when the provision of services by the company is recognized. As established by Assembly Bill No. 5, article 9 of the CLT provides that any acts performed to prevent the application of the rights provided for in the CLT are considered fraudulent and void.

Regardless of that, Brazilian case law has consistently opposed the notion that service providers that use digital platforms to connect with customers are employees of the companies responsible for such platforms. This understanding is based on the fact that, as a general rule, (i) there is no legal subordination between service providers and their digital platforms; (ii) service providers are not included in the organizational structure of the digital platforms; and (iii) service providers provide services through various digital platforms, often competing with each other, without any exclusivity.

Of course, while the digital platforms’ business model is not exempt from labor and employment risks, and digital platforms must take a number of measures to mitigate the risk of an employment relationship with the service providers that use it, in our view, the recent Californian law would not change the current Brazilian legal scenario if applied here.