May 7, 2018.
On April 30, 2018, the California Supreme Court issued its opinion in Dynamex Operations v. Superior Court, 4 Cal. 5th 903 (2018) and set forth a new, more restrictive test for determining whether a worker can be properly classified as an independent contractor.
There are substantial economic incentives for a business to mischaracterize workers as independent contractors rather than employees, as noted by the Supreme Court. These include the unfair competitive advantage the business may obtain over competitors that properly classify
similar workers as employees and that thereby assume the fiscal and other responsibilities and burdens that an employer owes to its employees. If a worker should properly be classified as an employee, the hiring business bears the responsibility of paying federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, providing worker’s compensation insurance, and complying with numerous statutes and regulations governing the wages, hours, and working conditions of employees. On the other hand, if a worker should properly be classified as an independent contractor, the business does not bear any of those costs or responsibilities, the worker obtains none of the numerous labor law benefits, and the public may be required under applicable laws to assume additional financial burdens with respect to such workers and their families.
In Dynamex, the Supreme Court adopted what has become known as the “ABC” test in determining whether a worker may properly be classified as an independent contractor. This test requires that a hiring entity establish all of the following to support the classification of a worker as an independent contractor:
- A) that the worker 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) that the worker performs work that is outside the usual course of the hiring entity’s business; and
- C) that the worker is customarily engaged in an independently established trade, occupation, or business.
Dynamex, 4 Cal. 4th at 964.
Prior to Dynamex, the test for determining whether a worker may be properly classified as an independent contractor turned on a multi-factor balancing test. See Borello v. Dep’t of Industrial Relations, 48 Cal. 3d 341 (1989) (discussing variety of factors to be considered in determining independent contractor status). Many of those factors are similar to parts of the Dynamex ABC test. However, the Dynamex standard is more rigorous, requiring the elements not to be weighed and balanced, but for a company to satisfy each element in order to justify an independent contractor classification.
Many companies that have customarily classified certain types of workers as independent contractors will face difficulty satisfying the Dynamex ABC standard and should reevaluate their employee classification schemes. In particular, workers in the emerging “gig” economy, such as ride-share drivers and delivery persons, as well as persons employed as trainers or class teachers at gyms, and similar jobs, may be significantly affected by this new standard and need to be properly reclassified as employees. Employees in these types of jobs are very often performing work that is indeed at the core of their company’s business, are not engaged in their own independently established trade, and have little to no discretion in how they perform their duties. Classifying such employees as independent contractors may therefore not pass muster under the Dynamex standard and can expose the employer to significant legal liability.
If you work in California for a company that has classified your position as an independent contractor, be aware of your rights. The classification may not be correct. Are you free from the control and direction of the company in performing your duties? Do you perform work that is outside the usual course of the company’s business? Do you have your own independent trade, business, or occupation separate and apart from the work you perform for the company? If the answer to any of these questions is no, you may potentially be more properly classified as an employee, triggering a whole host of requirements on your employer’s end. These include complying with minimum wage and overtime laws, tracking your work time, paying you for all time worked and not simply paying you on a per-task basis, and providing meal and rest breaks at appropriate intervals, among other things.
To find out more on any of these issues, please contact our offices: Wucetich & Korovilas LLP; (310) 335-2001; email@example.com. This article is for educational use only, should not be considered legal advice, and in no way creates an attorney-client relationship between the firm and the reader.