The question of whether a worker is classified as an independent contractor or an employee under the law has significant consequences in terms of the legal protections afforded to workers. An employee is covered by the basic labor standards imposed by law such as minimum wage, overtime, and compensation for hours worked. Moreover, laws such as the Occupational Safety and Health Act (OSHA) and the National Labor Relations Act (NLRA) apply only to employees. An independent contractor, on the other hand, falls outside the scope of said legal protections and benefits.
A misclassified employee, then, is deprived of many standard benefits such as minimum wage and overtime pay, and such a misclassification can result in significant wage losses for the worker. Reports by the federal government have indicated that employee misclassification poses a significant and nationally-prevalent economic problem, both for misclassified employees and state and federal governments that depend on employment taxes for revenue.
Yesterday, the California Supreme Court decided the case of Dynamex Operations West, Inc. v. Superior Court. Prior to Dynamex, determining the proper classification of a worker in California hinged on the application of a vague multi-factor test, primarily centering around the degree of control the hiring party exercised over the manner and means of performing a worker’s job duties. This test required strict examination of the circumstances of each individual employee, such that misclassification class actions were difficult to maintain and employers could toe the line while plausibly arguing that workers are independent contractors.
In Dynamex, the California Supreme Court acknowledged the serious problem posed by misclassification of workers as independent contractors. It also noted the fact that hiring businesses were manipulating the prior multi-factor test: such businesses would divide their workforces into disparate categories and manipulate the many circumstances that may be relevant to classification by altering the working conditions of individual workers in such categories.
In order to ensure a more predictable and uniform resolution of whether a worker is properly classified as an independent contractor or employee, the California Supreme Court prescribed what is known as the “ABC” test. Now, under California’s wage orders providing minimum wage, overtime, and meal and rest protections, all workers are presumptively employees. A hiring business may classify a worker as an independent contractor only if:
- The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact,
- The worker performs work that is outside the usual course of the hiring entity’s business, and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed for the hiring business.
Under this new “ABC” test, many workers who were previously classified as independent contractors are now employees subject to the overtime, minimum wage, and meal-and-rest protections of California’s wage orders. In addition, the question of classification is now much simpler and uniform across workers, making class actions seeking recovery for misclassification more feasible.
In sum, the California Supreme Court changed the law favorably for civil plaintiffs and aggrieved workers, and many more workers in California will have claims against their employers for misclassification. If you believe you have cause to file suit or take action against an employer in Redondo Beach, Torrance, or surrounding South Bay communities, please call Kirtland & Packard at 310-536-1000 for a free consultation right away. Our employment law attorneys fight for misclassified workers and are here to fight for you.