Independent Contractor or Employee?  Better Take a Second Look

Author: Trina Clayton

On April 30, 2018, the California Supreme Court issued an opinion in Dynamex Operations West, Inc. v. Superior Court, which could change the workplace status of people across the state.  With this new ruling, the Supreme Court has clarified the standard for determining whether workers in California should be classified as employees or as independent contractors for purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”).  Most notably, IWC orders apply to issues such as overtime pay and meal and rest break requirements.

The Court’s unanimous decision in Dynamex has particular implications for members of the gig economy, such as Uber, Lyft, and Amazon, as well as members of other industries, including cannabis.

With this recent ruling, the Supreme Court essentially abandoned a standard that California courts had used for 30 years to determine employment status, based largely on how much control a business exercised over wages, hours and working conditions.  Instead, the Court in Dynamex applied the “ABC” standard (used in several other states) which sets out that a California worker is presumed to be an employee, not an independent contractor.  Workers are permitted to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions:

(a) that 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 the work and in fact; and

(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 of the same nature as that involved in the work performed.

If an employer fails to prove even one of the above criteria, the worker must be classified as an employee, not an independent contractor for the purposes of the applicable wage order.

The ruling did not address other issues, such as payment of work expenses, workers’ compensation and unemployment benefits, which are covered by separate laws, but the Dynamex Court’s rationale should help workers seeking employee status overall.

The Dynamex ruling is likely to lead many employers in California to immediately question whether they should reclassify independent contractors rather than face stiff fines for misclassification.  Ad Astra Law Group strongly urges any employer doing business in California to review their independent contractor relationships under the “ABC test” to determine whether any or all such workers should be reclassified.  For specific legal advice on employee/independent contractor status or any other type of employment issue, please contact Ad Astra for guidance.

By Scripta Ad Astra Staff

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