California Employment Update
September 13, 2020, | Employment
NEW CALIFORNIA TEST FOR DETERMINING WHETHER WORKERS ARE INDEPENDENT CONTRACTORS VS. EMPLOYEES
California law governing whether workers are employees or independent contractors has been evolving. This year, the California Governor signed new legislation on September 4, 2020 setting forth a new test to apply.
There is a significant difference between classifying workers as employees or independent contractors. For example, employees are entitled to unemployment insurance, workers’ compensation, overtime, and the employer pays for Social Security and payroll taxes. The Federal and California State governments make more money if the workers are classified as employees and many decisions have been classifying workers as employees.
The new test is referred to as the “ABC” test and a worker is considered an independent contractor if all the following are met:
A. The worker is free from control and direction when performing the service under contract and in fact;
B. The services performed is outside the usual course of the hiring business; and
C. the worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature of the work performed for the hiring entity.
Traditional occupations are still independent contractors such as plumbers, gardeners, and electricians. The issue, however, becomes complicated with respect to other workers. Some trades/occupations are specifically exempt from the employment status (which is not discussed herein).
In the recent case of Dynamex Operations West v. Superior Court (2018) 4 Cal. 5th 903, the California Supreme Court had to determine the class certification of workers who were drivers and claimed that they were employees.
To assess the factors of constituting a class action, the California Supreme Court applied the “ABC test” to determine such. It followed the other states, which had applied the ABC test.
Two workers sued the company and brought a class action claiming that they were employees, not independent contractors. The Dynamex case was limited to the Court interpreting a wage order for determining whether the workers were employees or not. The California legislature expanded that case and codified it in the new Labor Code statute stating that the ABC test applies to this issue, while maintaining some of the past exemptions and carving out others.
In applying the ABC test, the Court noted that the drivers were free to work for other competitors, drive their own routes and select the sequence. The drivers had to notify the Company in advance of the days they would work because they could work for competitors and make deliveries for others. The drivers signed independent contractor agreements. They had to use and maintain their own vehicles, pay for mileage, and other similar costs. The Company set the rates for their customers and the driver would get a flat rate or a percentage. The Company generally wanted the workers to wear their shirts with the logo.
The problem is that the Company had previously designated the drivers as employees and changed their classification to cut costs, such as workers compensation, unemployment, overtime and so forth. The Court noted that the workers performed the same work as Dynamex, which was a delivery service.
The Court found that the workers had common issues in order to properly bring a class action lawsuit. By comparison, the Court cited a case where the truck drivers were found to be independent contractors because they delivered coal for a coal company. The coal company was not in the business of delivering goods.
General Practice
If you are unsure of the classification of your workers, it is best to work with an attorney up to date on the laws. You may contact Catherine Corfee Esq. of Corfee Stone Law Corporation for Employment Advice and/or Litigation. (916) 487-5441 – Catherine@corfeestone.com
This article is not implied or express advice from Corfee Stone Law Corporatin and/or Catherine M. Corfee and cannot be relied upon for such. Classifying workers is fact specific and requires extensive analysis.
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