California Supreme Court: Under Wage Orders Workers Are Presumptively Employees, Not Independent Contractors

May 1 is International Workers’ Day, or May Day, and is a day to celebrate laborers and workers. It also commemorates workers who were killed while on strike protesting for an eight-hour work day in Chicago during what is known as the Haymarket affair. Just in time for May Day, yesterday the California Supreme Court adopted a new test for determining whether a worker is an independent contract or an employee.

The distinction in being classified as an independent contractor or an employee is an important one. Numerous laws protect the rights of employees, but do not protect independent contractors. For example, California’s minimum wage, overtime, meal period, and rest break laws apply to employees, but do not apply to independent contractors. Many employers misclassify their workers as independent contractors instead of employees to avoid having to comply with the many laws and regulations that protect employees – usually to shift costs onto the worker and off of the company.

Although the employee vs. independent contractor debate has raged on for many years, it has been in the spotlight with the explosion of the so-called “gig economy.” A number of decisions have come down through the courts and through the regulatory agencies, and depending on which law applies, different tests apply for how an employee is classified. However, the California Supreme Court has now definitively adopted a new test for determining whether a worker is an employee or an independent contractor under the California Wage Orders in Dynamex Operations West, Inc. v. Superior Court (Lee).

Dynamex is a same-day delivery company that hires drivers to carry out the deliveries. In 2004, the company changed the drivers’ status from employees to independent contractors. After being reclassified, the drivers had to provide their own vehicles, pay for their expenses (tolls, fuel, maintenance, insurance), taxes, and workers’ compensation insurance. Dynamex controlled how the workers were given delivery jobs and drivers were not guaranteed any number of deliveries. The drivers filed a class action lawsuit alleging wage and hour violations, claiming that they were required to do the same duties as independent contractors as they had while they were classified as employees.

The California Supreme Court held that the appropriate test for purposes of wage orders is the “ABC” test. Under the ABC test, a worker is only properly considered an independent contractor (and thus wage orders do not apply) if the hiring company establishes:

  1. That 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 such work and in fact;
  2. That the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. 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.

Importantly, this test “presumptively considers all workers to be employees, and permits workers to be classified as independent contractors” only if they satisfy each of the three requirements of the ABC test.

Adoption of this standard is long overdue and is welcome relief for workers throughout the state of California. For purposes of wage and hour laws, workers are presumptively considered employees under the ABC test and the employer will have to prove otherwise. This is likely to extend protections to a significant number of employees throughout the state who have been, up until now, been classified as independent contractors.

If you believe you have been misclassified, please contact our office for a consultation.

Jean Krasilnikoff