Changes to Independent Contractor Status

A recent California Supreme court decision, Dynamex operations W., Inc. v. Superior Court, 4 CAL 5th 903 913 (2018) redefined the criteria of who qualifies as an independent contractor.

 

Employees who do not meet the new test must be classified as employees. The Dynamex decision essentially changed the rules on how to distinguish independent contractors from employees.

 

The Dynamex case evolved around delivery drivers who sued the company when their status changed from employees to independent contractors without any substantial change in their job descriptions. Previously the courts in California utilized a flexible multi-factor test in examining whether a worker was considered an employee or independent contractor. Under the old rules, the status of the worker was determined by establishing who has the right to control the manner and means of the work. Numerous factors would be considered including:

  • Ability to hire or fire,

  • The specificity of the work performed,

  • Occupation,

  • Customs,

  • Skills required,

  • Who provided the tools for working,

  • Length of service,

  • Method of payment,

  • Whether work was part of the employer’s regular business,

  • And the beliefs of the parties involved.

 

The Dynamex court determined that this multi-factor test was no longer valid since it allows employers to evade wage and hour law. Instead the court adopted what is now called “The ABC Test” This test considers a worker an employee by default, unless the hiring company can establish:

  1. The worker is free from the control and direction of the employer concerning the performance of the work under contract and in fact.

  2. The employee performs work outside of the usual course of the hiring entity’s business.

  3. The employee is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Under this new test, the hiring company now has the burden to prove that they are in compliance with this rigid standard which favors classification of workers as employees. Employers may now have to make a decision in order to avoid any kind of personal liability with regard to using independent contractors. And you thought the above was bad, court cases following the Dynamex decision are now being applied retroactively.

 

The Dynamex case illustrates how quickly courts can change long standing laws that now may give rise to unforeseen liability, which in the past were good business practices.

 

It is now incumbent upon the business owner who utilizes independent contractors to seek competent counsel and re-evaluate how they currently classify their workers.