California Supreme Court Decides Standard Applicable to Classification of Workers As Independent Contractors

On April 30, 2018, the California Supreme Court issued a decision that may make it more difficult for California employers to classify workers as independent contractors rather than employees. Specifically, in Dynamex Operations W., Inc. v. Superior Court, 2018 WL 1999120 (Cal. Apr. 30, 2018), the Court held that the burden is on the hiring entity to establish that the worker is an independent contractor by establishing all three of the following factors:

1. That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
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.

The Dynamex case involved a nationwide same-day courier and delivery service that converted all of its drivers from employees to independent contractors. The plaintiffs alleged that the drivers were misclassified as independent contractors and that the drivers were performing essentially the same tasks in the same manner as when the drivers were classified as employees.

The Court reasoned that a worker who has been hired by a company can only be viewed as an independent contractor, the type to which the wage order at issue was not intended to apply, 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.

It is important that employers evaluate any independent contractors in light of this case to ensure they do not need to be reclassified. The consequences of misclassification can be significant because, for employees, employers are responsible for paying federal Social Security and payroll taxes, unemployment insurance taxes, state employment taxes, providing worker’s compensation insurance and complying with state and federal statutes and regulations regarding wages, hours and working conditions. Employees are also protected by applicable labor laws and regulations. An employer who misclassifies a worker as an independent contractor may face liability for failing to meet any or all of those obligations.