The California Supreme Court significantly narrowed the criteria allowing employers to classify workers as independent contractors, likely requiring certain companies to begin paying taxes and benefits.
The decision follows a class-action case centered on two drivers who worked for Dynamex Operations West, a national delivery company. They accused the firm of illegally classifying its drivers as independent contractors. The workers did not have the characteristics of independent businesspeople — they did not have employees or provide their service to companies other than Dynamex.
The lower court sided with the drivers, and the California Supreme Court agreed. “... We conclude that the [law] must be interpreted broadly to treat as ‘employees,’ and thereby provide the wage order’s protection to, all workers who would ordinarily be viewed as working in the hiring business,” the court said in its published opinion.
The court replaced the long-time test in California for determining whether or not a worker can be classified as an independent contractor. Where the previous test was fairly complicated and open for interpretation, this one is more direct, employing an ABC test often used in other contexts.
“Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work...; (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.”
Criteria B and C will pose tough hurdles. For B, the court compares two situations: A retail store that contracts a plumber to repair a leak versus a clothing manufacturer using work-at-home seamstresses. In the first example, the plumber performs a job completely different from the retailer. “In the latter settings,” the court said, “the workers’ role within the hiring entity’s usual business operations is more like that of an employee than that of an independent contractor.”
Regarding C, justices said that a true independent contractor chooses that status rather than having it thrust on them by the employer. Such a person has made the choice to start a business and takes steps to grow it.
The fact that the hiring company does not prevent individuals from soliciting work elsewhere does not help their case, the court added.
Not only would this test prove fairer to workers, the court said, it would level the playing field for companies currently granting employee status for workers.