Employment Law

Say Goodbye Independent Contractor, Hello Employee!

By Thomas E. Daugherty, Esq.

The California Supreme Court broke new ground in providing protections to California workers, by making it much easier for a worker to qualify as an employee, subject to the protections of Wage Orders, as opposed to an independent contractor, with no such protections. California’s Wage Orders set worker protections relating to minimum wage, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks).

Photo of Thomas E. Daugherty
Thomas E. Daugherty

In the case of Dynamex Operations W. v. Superior L.A. County, the Supreme Court adopted a much broader standard, holding that to “employ” means to “suffer, or permit to work.”  The Court held that this definition 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 under the new “ABC” test. The new classification standard will make it easier to find liability for misclassifying workers as independent contractors.

The ABC test presumptively considers all workers to be employees, not independent contractors.  If employers choose to engage workers as independent contractors, in order to avoid liability for misclassification of an employee, they must be able to prove 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 and in practice; 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.

To qualify as an independent contractor, the worker’s role must satisfy all three of these factors.  The new “suffer or permit to work” standard is intended to be broader and more encompassing than the previously used common-law test, which primarily evaluated the business’s ability to control the manner and means of work, as well as a variety of other factors, as established is the seminal case, S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.

Next Steps for Business Using Independent Contractors:

Liability for misclassification of an employee as an independent contractor can include minimum wage and overtime violations, meal and rest break violations, other penalties, interest, and an award of attorneys’ fees to the prevailing plaintiff.  These costs can be significant, especially in a class action lawsuit.

To avoid future liability for misclassification, businesses using independent contractors should take the following steps:

  1. Evaluate whether the independent contractor is subject to the direction or control of the employer: Can the employer direct the manner and means of how the work is accomplished? Is there a written agreement that allows the employer to control aspects of the work, even if not exercised?  In practice, is the worker supervised or directed in any way? Is the worker instructed, or is approval required for certain aspects of the work?  If so, there may be sufficient control to find the worker an employee.
  2. Determine whether the worker’s role is part of the normal business operations, or outside the normal business operations.  For example, if the worker is a carpenter hired to install a new door in an office space, this would typically be “outside” work and the worker could be an independent contractor (assuming the other two factors are satisfied).  Or, if the worker is a delivery driver engaged by a pizzeria that regularly delivers pizzas, then the driver’s work of delivering pizzas would typically be considered an integral and regular part of the pizzeria’s business operations, so that worker would be doing work inside the usual course of the business operations, making the worker an employee.
  3. Determine if the independent contractor is customarily engaged in a separate, independently established trade, occupation or business. If the worker is full-time and does not provide services to the worker’s own clients, separate and apart from the business, chances are stronger that the worker will be found an employee. If the worker maintains a separate business entity, provides services to other clients, and/or maintains his or her own employees, this may be sufficient to find an independent contractor, if the other two factors are satisfied.
  4. Consult with an employment attorney. Liability for misclassification can be significant, and the nuances of the law applied to any given set of facts and circumstances can be complicated.  Even if just one of the three factors is not satisfied, the worker will be determined an employee, entitled to the protections of the Wage Orders.  If a business uses independent contractors, it should consult with counsel to determine whether those workers should be categorized as employees.

Many workers that are currently considered independent contractors under the Borello test will now be considered employees.  It is critical that employers recognize the change in the classification standard, and consult with employment counsel make all necessary changes, in order to comply with the law.

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