Time to Review Your Worker Classification Status
By now you have probably read about the April 30, 2018, highly anticipated Dynamex Operations West, Inc. v. Superior Court decision wherein the California Supreme Court overturned almost 30 years of case law by concluding that a worker is now presumed to be an employee. To overcome this presumption and prove that a worker is instead an independent contractor, an employer must meet the new standard referred to as the “ABC” test, which requires all of the following:
- The worker must be free from the employer’s control;
- The services must be different than those of the employer’s business; and
- The worker must be engaged in a business of the same nature as the services he or she provides.
This means that a plumber who is hired by a retail store for repair services would be considered an independent contractor, whereas a seamstress hired by a clothing manufacturing company to work at home would be considered an employee, because the seamstress is doing the same work in the usual course of business of the clothing manufacturer. Moreover, the worker must now have a bona fide business of the same nature as the services he or she provides. Facts that would demonstrate the existence of a separate business include, though not required, business licensing, incorporation, or advertising. Lastly, the services being provided by the worker in his or her own business, must be different from those provided by the employer. The Dynamex decision adopts a harsh new standard for employers; it appears that only in the rarest of circumstances can a worker be classified as an independent contractor.
Dynamex will probably be much-litigated over the next several years. Recent decisions indicate that courts are already expanding the Dynamex holding to apply retroactively (to claims that occurred prior to the Dynamex decision) and to Labor Code violations, not just Wage Order violations (as in Dynamex). This means that Private Attorney General Act representative claims brought by your employees will now fall under the Dynamex ABC test in determining whether a worker is an employee or independent contractor.
What does all this mean for your business? It means that there is no time like the present to have your worker classifications reviewed by an experienced employment lawyer to ensure compliance with California’s ever changing law. Misclassification can result in significant liability exposure such as non-payment of overtime and/or minimum wage, failure to pay mandatory sick time, failure to provide itemized wage statements, and a host of other potential Labor Code violations. Such an analysis is fact specific and will vary on a case by case basis.
Michelle Ferber is the Managing Shareholder at Ferber Law in San Ramon, CA. She is an employment and business lawyer, defending employers in actions involving harassment, discrimination, retaliation, wrongful termination, wage and hour violations and business torts. Michelle can be reached at Ferber Law phone: 925-355-9800 email: mferber@ferberlaw.com
This article is not intended and should not be relied upon as legal or tax advice pertaining to any specific matter. You are encouraged to seek competent legal and tax counsel before proceeding with any transaction involving any of the matters discussed above.