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All Workers Presumed to Be Employees (Unless the Employer Can Prove Otherwise): The State of Independent Contractors vs Employees in California

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Open the business section of any newspaper on a given day, and it is likely you’ll find a reference to our current “gig economy.” Gig what? Economists call the state of our current economy a “gig economy,” referencing the shift of individuals from traditional employment to working as independent contractors.

And there may be some workers out there who are okay with being independent contractors – going so far as to enter agreements with the company they are working with to sign an agreement they are properly classified as an independent contractor.  However, under federal and state law, determinations of employee versus independent contractor is not so easy as just an agreement – and under recent California Supreme Court case law, properly classifying someone as an independent contractor just got a whole more difficult.

In the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018), the California Supreme Court announced a new standard for determining whether an individual should be classified as an independent contractor or employee, applicable to state laws governing wages and benefits, that places a significantly higher burden on employers to prove they are not simply misclassifying employees as independent contractors. So what does this mean for classification of workers? And what can you do if you think you’ve been misclassified?

Workers May Be Employees If They Support Employer’s Core Business

The Supreme Court’s decision of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018) was prompted by a class action filed on behalf of drivers who worked for Dynamex, a nationwide courier and delivery service. Previously, Dynamex classified its delivery drivers in California as employees. Starting in 2004, however, the company unilaterally decided to reclassify these same drivers as independent contractors. This meant drivers were expected to provide their own delivery vehicles and pay their own employment taxes and workers’ compensation insurance, without receiving benefits typically allotted to employees under the law.

In 2005, a former Dynamex driver filed the present class action. In his claim, he alleged that since drivers like him “have performed essentially the same tasks in the same manner” as when Dynamex classified them as employees, the company was effectively doing an illegal end-run around the California Labor Code. The class action complaint sought damages for at least five separate violations of California labor laws.

Although the class action allegations sound simple enough, it sparked approximately 13 years of litigation. During litigation, a trial judge declined to certify the class action, an intermediate appeals court reversed that decision, and the California Supreme Court upheld that reversal, albeit on somewhat different grounds than the intermediate court.

In the final decision, the California Supreme Court announced a new legal standard going forward when it comes to deciding whether someone is an “employee” or an “independent contractor.” Under this new standard–known as the “ABC test,” all workers are presumed to be employees. The burden of proof is then on the employer to prove the worker is actually an independent contractor, which requires satisfying all of the following conditions:

  • The worker is “free from the control and direction of the hirer in connection with the performance of the work,” both in practice and under the terms of the contract governing the work relationship;
  • The work performed by the worker is “outside the usual course of the hiring entity’s business”; and
  • The worker “customarily” performs the work at-issue “in an independently established, trade, occupation, or business of the same nature.”

The second standard is especially noteworthy, as it implies that someone is an employee anytime their work directly supports the employer’s “core” business. As the California Supreme Court explained, if “a retail store hires an outside plumber to repair a leak in a bathroom on its premises,” the plumber is not supporting the store’s core business. But if a clothing manufacturer “hires work-at-home seamstresses to make dresses” from company-supplied patterns, those workers are supporting the core business and therefore should be classified as employees.

Not only can misclassification cause an employee to lose out on valuable benefits typically reserved for employees, but it can have a profound impact on pay – such as entitlement to meal and rest breaks as well as overtime payment. Moreover, employees enjoy additional rights under discrimination and harassment laws, where most independent contractors do not.

If you need advice about your legal status as an employee or independent contractor, or think you may have been misclassified as an independent contractor, you should contact a qualified California employment law attorney today. Remember, these claims are subject to a strict statute of limitation, so it is important to take action quickly.

Sources:

courts.ca.gov/opinions/documents/S222732.PDF

mercurynews.com/2018/05/01/gig-economy-earthquake-california-supreme-court-rules-on-worker-classification/amp/

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