Employee or Independent Contractor? That Is the Question

Big news from California!

Yesterday, the Supreme Court of California issued its long-anticipated ruling in Dynamex Operations West, Inc. v. Superior Court, S222732.

This was breaking news for members of the gig economy (not just a buzzword—the “gig economy” refers to the increased tendency for businesses to hire independent contractors and temporary workers, and the increasing availability of workers for these jobs), as well as employment law nerds like me, particularly because the decision will restrict businesses from classifying workers as independent contractors.

Why is this so important?

Drivers of a package and document delivery company, Dynamex Operations West, alleged that the company misclassified them in order to avoid paying wages and benefits.

Properly classifying workers is critical for many reasons, not least of which is that only employees fall under the protection of certain federal laws and entitlements. And for employers, misclassification can get you into a whole lot of trouble.

Independent contractors don’t get meal breaks.

Independent contractors don’t have to be paid minimum wage and are generally not subject to wage and hour laws.

Independent contractors do not benefit from the protections of federal employment laws like Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act, or the Family Medical Leave Act, to name a few.

In order to classify someone as an independent contractor, an employer must be able to demonstrate that the contractor, not the employer, directs the work being done and controls his or her own work.

In California (and other states), an employer must also show that the worker’s duties fall outside what the company normally does and that the worker is “customarily engaged in an independently established trade, occupation or business,” which is the same type of work the person is performing for the business.

However, when an employer merely decrees a worker to be an independent contractor when that worker has not independently decided to engage in said independently established business, and all that this entails (advertising, corporate set-up), “there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification…. [and] obtain the economic advantages that flow from avoiding the financial obligations that a wage order imposes on employers unquestionably violates the fundamental purposes of the wage order,” explained the Dynamex Court.

The Court held that there is a presumption that individuals are employees, and when an employer dubs a worker an independent contractor, the employer bears the burden of establishing that its classification is proper under the same “ABC test” used in some other jurisdictions.

Employer Takeaway

California employers utilizing the gig model (and, in fact, this ruling may extend to other sectors of employment), here is your bright-line rule to classify your workers correctly. When all of these conditions are met, you have yourself an independent contractor.

(A) The employer must not control and direct the performance of the work, both under the contract for the performance of the work and in fact; and

(B) the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

ABC – simple.