California Supreme Court Adopts Broad New Employee/Independent Contractor Misclassification Test

In a ground breaking decision, Dynamex Operations West, Inc. v. Superior Court, Cal., No. S222732 (April 30, 2018), the California Supreme Court adopted a new legal standard that will make it much more difficult for companies to classify workers as independent contractors, drastically altering the labor and employment law landscape across the state.  The decision will directly affect the trucking and transportation industry because the workers involved in the case were delivery drivers, but it also has the potential to affect nearly every other industry—including employers in the emerging gig economy, such as Uber and Lyft.

Specifically, the California Supreme Court adopted a new standard for determining whether a company “employs” or is the “employer” for purposes of the California Wage Orders.   Under the new “ABC” test, a worker is considered an employee under the wage orders unless the company establishes all three of these prongs:

  1. The worker is free from the control and direction of the company in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  2. The worker performs work that is outside the usual course of the company’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the company.

This decision not only expands the definition of “employee” under the California Wage Orders, but it also imposes an affirmative burden on companies to prove that independent contractors are being properly classified.  One benefit of the California Supreme Court’s decision is it provide a framework for compliance with the ABC test, but it remains to be seen how California courts will apply this new standard, and it may take several years for the courts to devise a uniform analysis.  In the interim, and as a result of today’s decision, all California businesses with independent contractors will need to conduct a thorough evaluation of such workers to determine whether they are properly classified.  The failure to properly classify workers as employees could lead to significant liability under federal or California law.

For more information about this decision, contact Ron S. Brand of The Brand Law Firm.

(The full decision can be read here: http://www.courts.ca.gov/opinions/documents/S222732.PDF )

This blog provides general information about legal issues.  It is not intended to be, and should not be construed as, legal advice for any particular fact situation. 

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