On April 30, 2018, the California Supreme Court issued its much anticipated ruling in Dynamex Operations West, Inc. v. Superior Court that makes it more difficult for companies to label workers as independent contractors rather than employees and overturns nearly 30 years of legal precedence. The Court tossed out a more flexible standard that had been in place since 1989 and, instead, embraced a standard presuming that all workers are employees instead of contractors, and placed the burden on any entity classifying an individual as an independent contractor establishing that such classification is proper under the newly adopted “ABC test.”
Under the ABC test, a worker will be deemed to have been “suffered or permitted to work,” and thus, an employee for wage orders purposes, unless the putative employer proves:
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the 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.
Each of these requirements needs to be met in order for the presumption that a worker is an employee to be rebutted, and for a court to recognize that a worker has been properly classified as an independent contractor. With respect to satisfying the requirements of (C) above, it Is not enough that the worker works outside of the principal’s place of business or works for other, the worker must have independently decided to engage in an independently established business. This decision will have a significant impact on California’s growing Gig economy. As of now, this standard seems limited to wage and hour matters and other tests may still be useful for workers compensation and tax matters.
If you would like more information on how this ruling could affect your business, contact Schneiders & Associates, L.L.P. today.