New California Supreme Court Ruling (Partly) Clarifies Differences Between Employees and Independent Contractors
5.1.18
In a closely-watched case about the differences between employees and independent contractors, California’s Supreme Court has set the test for whether a worker is an employee to whom wage order rules such as minimum wage, overtime, reporting time pay, rest breaks, meal periods and other rules apply. The court ruled that, in the context of these rules, California courts will look to the so-called ‘ABC’ test. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (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 such 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 of the same nature as the work performed for the hiring entity.
This ruling in Dynamex Operations West is expected to have a wide impact in the so-called “gig economy”, affecting companies such as Uber, Lift, and Grubhub, but its impact will touch all industries in which independent contractors are utilized. The Supreme Court’s opinion noted that, under this test, an individual worker who has been hired by a company can properly be viewed as the type of independent contractor to which the wage order was not intended to apply only if the worker is the type of traditional independent contractor who would not reasonably have been viewed as working in the hiring business, for example when a retail store hires an outside plumber to repair a leak in a bathroom on its premises or hires an outside electrician to install a new electrical line. The Supreme Court’s ruling acknowledged that this ABC test is a different standard than applies to resolving the employee or independent contractor issue under federal law and also different than the standard applicable under California law when different statutory schemes have been enacted for different purposes, such as workers compensation protections, perhaps also unreimbursed business expenses and other claims.
Thus, each company who pays workers as independent contractors has a new and additional standard to take into account when evaluating if this is an appropriate classification. If you have questions about the standards applicable to any workers you classify as independent contractors, you can contact Ross Schwartz, Dick Semerdjian, Sarah Evans or Sierra Spitzer to set up a consultation on this topic.