Whether a worker is classified as an independent contractor or an employee is of critical importance to businesses. By way of example, if a worker is classified as an employee, she is given the protection of the California Wage Orders and is entitled to regular meal and rest breaks as well as overtime compensation. If a company fails to comply with the wage orders, it may be exposed to significant liability by way of lawsuits, statutory penalties, back wages, and taxes.
For decades, California Courts employed a multi-factor test to decide whether a worker was classified as an independent contractor or an employee. The test traditionally looked at 11 different factors aimed at determining whether the company had the right to control the manner and means by which a worker performed her work.
On April 30, 2018, in Dynamex v. Superior Court, the California Supreme Court replaced the multi-factor test with the simpler “ABC Test.” Under the ABC Test, California Courts will presume that a worker is an employee. The employer then bears the burden of rebutting the presumption by showing ALL of the following:
- 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; and
- That the worker performs work that is outside the usual course of the hiring entity’s business; and
- That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The Dynamex decision is likely to have dramatic consequences for employers. On the one hand, the ABC Test is much simpler for employers to understand and to follow. This should eventually lead to fewer lawsuits against employers striving to comply with the law. On the other hand, the ABC Test imposes a significant burden on businesses currently employing independent contractors. Under the new test, many workers may have to be reclassified as employees making them eligible for minimum wage, rest breaks, and other benefits.
The full text of the Court’s decision can be found here:
Any company that relies on independent contractors should immediately evaluate the impact of the Dynamex decision and consult with an attorney where necessary.
For more information, please feel free to contact JBB Law.