Employment Classification Just Took a Left Turn in California

There is big, BIG news out of the California Supreme Court that impacts every employer in the Golden State. At the very least, for California employers, the recent decision in Dynamex Operations West Inc. v. Superior Court is something that should grab their attention. And that’s because for the first time in nearly three decades, the standard to classify an individual as an employee or independent contractor has been altered.

Since 1989, courts have adopted a multifactor test to determine an individual’s employment status. More particularly, an employer’s control over a worker claiming to be an employee was the critical consideration by the courts making an employee/independent contractor classification; that, along with several secondary factors (e.g., among others, whether the work undertaken was a part of the regular business of the principal or alleged employer; whether the principal or the worker supplied the instrumentalities, tools and the place for the person doing the work; the alleged employee's investment in the equipment or materials required by his or her task; and whether the service rendered required a special skill). Not any longer, as control has taken a back seat to a three-pronged “ABC test.”

With its decision in Dynamex, in which a delivery company challenged a decision decertifying a class of delivery drivers in a wage and hour case, the Court now leans into a presumption that workers are employees. It has done so by adopting a standard (the ABC test) that labels a worker as an employee unless a business can show (1) the worker is free from its supervision or control, (2) performs work that is outside the hirer’s core business, and (3) customarily engages in “an independently established trade, occupation or business.” The Court expressly ruled that “the hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an . . . employee, rather than an . . . independent contractor . . ..”

Without question, this approach to employment classification is much more liberal than what had been the norm for 29 years. Now, an individual may be denied the status of employee "only if the worker is the type of traditional independent contractor – such as an independent plumber or electrician – who would not reasonably have been viewed as working in the hiring business," this according to the Court in Dynamex, which provided the following example:

A plumber temporarily hired by a store to repair a leak or an electrician to install a line would be an independent contractor. But a seamstress who works at home to make dresses for a clothing manufacturer from cloth and patterns supplied by the company, or a cake decorator who works on a regular basis on custom-designed cakes would be employees.

The burden is now squarely on the hiring entity to establish that a worker is an independent contractor, and that burden appears to be a hefty one. No doubt, more employers will have to consider (or reconsider) whether their arrangements with certain workers support independent contractor classification, a reality that will be felt across industries and is sure to “shake the halls” of the gig economy (read: Uber, Lyft, et al.).

Of course, the difficulty lies in making the necessary classification modifications and minimizing exposure.  That being said and despite the new standard’s presumption of employee status, it remains to be seen – likely through subsequent judicial and labor commissioner interpretation – just how different in practice the ABC test will be from the longstanding, and familiar, standard based primarily on control. Whatever the case may be, employers are encouraged to revisit their practices and take steps to best position themselves to withstand challenges to their contractor relationships. Rest assured, M&R’s California employment team stands ready to help in that regard.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.