Employers frequently struggle with the question of whether a worker is an employee or an independent contractor. Companies in California now have much clearer guidance with the recent California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (Dynamex).
Through this decision, the Supreme Court has now adopted the "ABC" standard. This new standard is stricter than the one previously used, and makes classifying someone as an independent contractor riskier than before.
This ruling states that workers are employees unless the employer can prove the worker passes ALL of the elements of the ABC test.
A - The employer cannot control and direct the worker, either as stated in a contract or in reality. The employer cannot try to control how, when and where the worker must do the job in an "independent contractor agreement," scope of work agreement, or other contract. And even absent such wording in writing, if the reality is that the worker is told to show up on the job site per a set schedule and then told exactly what to do and how to do it, this test will not be passed.
B - The worker must not be performing work or services that the company customarily provides. For example, a painter hired by an architecture firm to paint its offices will pass. A draftsman hired to come in to help meet a big project deadline likely won't. Employers should not routinely classify a worker as an independent contractor just because he or she works on a project basis or temporary basis. The length of time employed does not affect the decision of employee vs. independent contractor. Likewise, the fact that a worker performs services off-site, from home for example, doesn't make him or her any less of an employee if he or she is performing tasks included in the usual course of the company's business.
C - The worker must have a clearly established business of his/her own, as evidenced by advertising, incorporation or a filed dba, a business license, etc. and the individual must routinely offer services to the general public, multiple clients, not exist just to provide services for one business entity.
There are real risks to classifying true employees as independent contractors. For example, a company may be find itself facing claims of unpaid overtime; wage statement, missed meal and rest break, payroll tax, and other penalties; and costly litigation and attorneys fees.
Employers would do well to evaluate any workers currently being paid on a Form-1099 basis and/or as an independent contractor. Do they pass each test? If not, consider shifting their duties to an existing employee, or protect your company by converting them to a proper employee.
These are pretty high standards, but they are clear. The Dynamex decision will make it easier for employers to prove they are classifying a worker properly if they are following the law. But employers trying to game the system by hiring "independent contractors" instead of employees are vulnerable in light of this new decision.
Laws pertaining to these issues can be complex and confusing. Employers should seek counsel regarding their obligations under the law. Contact Freeland Law APC for a free 30-minute consultation with Michael Freeland, experienced employment lawyer serving San Diego, La Mesa and El Cajon, California. Michael Freeland has been practicing law for more than 27 years and specializes in employment law matters.
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