5/1/2018 California Supreme Court Overhauls Decades of Precedent, Establishes New Employee-Friendly Classification Test

On April 30, 2018, the California Supreme Court created a new standard to determine whether workers are considered independent contractors or employees, shedding light on the status of workers in the growing “gig economy.” In Dynamex Operations West, Inc. v. Super. Ct., Case No. S222732, a delivery driver for a nation-wide courier service sought certification of a class of drivers claiming that the service had misclassified them as indepenent contractors. The driver urged the court to adopt a more rigid, worker-friendly test for classifying workers over the former, looser standard, which focused on whether the employer could control the way in which the worker performed the work.

The California Supreme Court agreed with the driver and held that there is a presumption that individuals are employees for the purposes of wage orders adopted by the California Industrial Welfare Commission. The court further held that it is the employer’s burden to prove that the worker is an independent contractor and that wage orders imposing obligations such as minimum wage, maximum hours, and other work place conditions do not apply.

The court followed a New Jersey Supreme Court decision in adopting a three-factor test for employers to meet this new burden known as the “ABC test.” Under that test, an employer must show all three factors to establish that the worker is an independent contractor: (A) 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; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Dynamex will force California employers who rely on independent contractors to evaluate their process for worker classification. Following the decision, employers will want to review their relationships with such workers and apply the “ABC test” to determine whether those relationships need to be reclassified. To view the court’s opinion in Dynamex, click here.