California Adopts a New Independent Contractor Test

Earlier this week, the California Supreme Court brought the independent contractor dilemma back into the news when it issued a decision in the matter of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In a monster, 82-page decision, the California Supreme Court adopted a new standard for determining whether workers should be classified as employees or independent contractors for the purposes of the wage orders.  As a reminder, the wage orders impose obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees.

The California Supreme Court determined that the “suffer or permit to work” definition of “employ” must be “interpreted broadly to treat as “employees,” and thereby provide the wage order’s protection to, all workers who would ordinarily be viewed as working in the hiring business.”  In other words, the Court created a presumption that all workers are employees.  Employers seeking to classify workers as independent contractors must now establish that the classification is proper under the “ABC” test adopted by the Court and already in use in other jurisdictions (including Massachusetts).

Under the “ABC” test, a worker may properly be considered an independent contractor only if each of the following factors is met:

(A) the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B)the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

The “ABC” test is virtually impossible to meet for any company with workers providing services that are within the company’s usual course of business.  While this will be particularly relevant for businesses operating in the “gig economy,” it is important for all businesses to understand the importance of properly classifying workers, and to understand the consequences of misclassifying independent contractors.

Where the Court’s decision is limited to wage claims arising from wage orders, it is possible that some California businesses will have workers who must be classified as independent contractors for purposes of the wage orders, but not for other laws.  As such, we recommend reviewing any independent contractor classification with an attorney to avoid misclassification headaches.

And, if you’re curious as to how courts in another jurisdiction enforce the “ABC” test, look no further than our March 7, 2018 blog entry, found here.

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