Legal questions focused on workerclassification take on special significance in a state where someof the biggest and most visible on-demand companies werefounded.

The California Supreme Court used real-world examples to explainits highly anticipated ruling that adopted amore structured test for how companies must classify their workers: Aplumber who's hired to fix a problem in a retail store is anindependent contractor. A cake decorator at a bakery should beconsidered an employee.

The ruling, with wide implications for the gig economy, put in place a new test that usesthree distinct factors to determine whether a worker is an employeeor an independent contractor. Monday's decision changes the standard from themore flexible one that had been used in the state since 1989.

Legal questions focused on worker classification take on specialsignificance in a state where some of the biggest and most visibleon-demand companies were founded. The businessmodels for many app-centered companies that say they employcontractors, not employees, do not fit neatly into the categoriesoutlined in the real-world examples explained by the court. Thestakes are high—employees are entitled to certain benefits, such as minimum wage andworkers' compensation.

Related: Gig workers: who are they and how much do they getpaid?

Companies across the state are expected to re-evaluate their ownworkforces, and the foundation of contractor-based business modelswill be tested, employment attorneys told The Recorder ininterviews. The number of class actions is anticipated toballoon.

The “ABC” classification test, adopted by the California court,says an independent contractor is a worker who is free from thecontrol and direction in performing the work; the worker performswork that is outside the usual course of the business; and theworker is “customarily engaged in an independently establishedtrade, occupation, or business” of the same nature as the workperformed by the hiring entity.

What follows are three considerations that attorneys andcompanies are facing now.

1. The gig economy will have to defend its businessmodel. And it won't be easy.

The gig economy's structure is at stake. The new test will makeit more difficult for companies to defend classifying workers asindependent contractors.

Two of the “ABC” factors could be problematic. The first factorof exercising control is fairly straightforward and commonly arguedduring litigation—companies contend their contractors are free towork as little or as much as they want. That's one of the mainselling points for signing up to drive for, say, Uber or Lyft.

But the second factor—requiring that the performed work beoutside the company's chief business—is trickier.

App-based companies that hire workers such as drivers ordelivery personnel as independent contractors could argue they arenot transportation or food delivery companies, but rather theirbusiness is technology and their product an app.

“If you are a delivery-type person and you are delivering food,would the delivery be part of the business of that entity? If youcast a critical eye to that, that type of delivery person might bean employee,” said Tim Long, a partner at Orrick, Herrington &Sutcliffe in Los Angeles.

The third factor is a puzzle, as well, and it's unclear howstrictly the court will interpret the requirement that the workerhas an established trade or occupation that fits the businessmodel. Many people employed by gig companies do not considerthemselves as having their own separate business entity.

“You had better look very carefully at every one of yourclassifications,” Long said. “This case raises heightenedawareness. If you don't do it, you are taking a big chance.”

Kimberly Chase, a partner in the Orange County office of Haynesand Boone, said gig economy companies will look closely at whetherthey need to reclassify their workers as employees.

“Things will get more expensive and hoops to jump through interms of how they run things,” Chase said. “It will be heavilylitigated. The gig companies, such as Uber, might say, 'We are anapp. We provide an app, we don't provide driving services. We nevertouch the food. We don't own the cars.”

2. Litigation is certain to increase. Theinterpretation of the test is still to be determined.

There has been no shortage of litigation over workerclassification questions, and the sharing economy fostered evenmore cases and controversies. Federal and state judges around thecountry are being presented these issues, and the California rulingcould ramp up disputes.

“There is still a lot of uncertainty,” said Zach Hutton, a PaulHastings partner in San Francisco. “The courts will determine whatit means to perform work within the usual course of business, forexample. I don't think will be the end of the litigation.”

Hutton said new litigation will guide companies on theparameters of the worker classification test.

Anne Barnett, principal at Polsinelli in San Francisco and LosAngeles, said the boundaries of the “ABC” test are not clear.Companies with deeper pockets might test the waters.

“The reality is that the justices didn't use examples that arereally modernized or relevant to the gig economy,” Barnett said.“Ultimately there will be an influx in litigation, particularlyclass actions. As a result, we'll have better boundaries of thetest.”

3. Employers across the state will re-evaluate theirworkforces. Is clarity a silver lining for companies?

Long of Orrick put it like this: “What should companies bedoing? Evaluating all their independent contractor classificationswith critical eyes. The Supreme Court made it clear the burden ison the employer. Any responsible hiring entity should take to heartwhat the court is changing. They will be facing toughdecisions.”

For all companies, the Supreme Court's ruling could providecertainty, said Travis Gemoets, partner at Jeffer Mangels Butler& Mitchell in Los Angeles. Gemoets said even though it's notnecessarily cut and dry, the test can provide a blueprint for evengig economy companies.

“Now that this is the law of the land, businesses can say, 'Heymine fit,'” Gemoets said. “Some of them will not and they willadjust. If they don't fit in the nice neat categories, they canre-classify or figure out a way to get them to fit.”

Hutton of Paul Hastings said companies will be lookingspecifically at vendor relationships. This may result in switchingworkers to employee status or businesses may create ways to screenthese relationships moving forward to make sure they comply.

“I'm not sure there is a one-size-fits-all answer,” Hutton said.“It's certainly a stricter test with the three elements, but Idon't agree that in all cases that the outcome will bedeterminative.”

Barnett of Polsinelli said the case will lead to “sweepingchanges in how employees look at classifying their employees.” Shesaid in California there is significant risk of wage-and-hourcompliance issues.

“Employers have to go back to the drawing board to determine theextent they can change their business models or work around the newtest,” she said. “It's such a significant piece of their businessmodel. Many will not just abandon it but figure out a way toadapt.”