California Supreme Court Changes the Test for Independent Contractor Classification

California Supreme Court Changes the Test for Independent Contractor Classification

The California Supreme Court’s unanimous April 30 opinion in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 2018 Cal. LEXIS 3152 (Cal. Apr. 30, 2018) changed the test for determining whether a worker is an employee or independent contractor. The case was brought on behalf of delivery drivers as a class action against Dynamex. The plaintiffs alleged that Dynamex misclassified them as independent contractors, requiring them to pay for their own fuel and mileage, among other things.

The court first noted that the decision to classify a worker as an independent contractor or employee can have considerable significance for workers, businesses, and the public. For example, the court explained that if a worker is classified as an employee instead of an independent contractor, the employer “bears the responsibility of paying federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, providing worker’s compensation insurance, and…complying with numerous state and federal statutes and regulations governing the wages, hours, and working conditions of employees.”

The court then held that businesses hiring workers as independent contractors bear the burden of proving that such classification is proper according to the “ABC test” that is utilized in other jurisdictions. Under this test, which greatly expands the definition of an “employee” under the Wage Orders, a worker is properly considered an independent contractor only if the hiring entity establishes all of the following:

(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.

The court’s decision in Dynamex essentially replaces the court’s 1989 decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341. In Borello, the court created a multi-factor test and no one factor was determinative. However, in Dynamex, the court adopted a much simpler test that consists of three prongs, all of which must be met.

The Dynamex decision will have a significant impact on the way businesses classify their workers. It will be especially interesting to see how this decision affects the rising gig economy. You can read the entire 82 page opinion here.

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