About one year ago, the California Supreme Court dropped a bombshell on the employment world by dramatically re-defining what is required to establish independent contractor status of a worker. In Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, 416 P.3d 1 (Cal. 2018), it broadened the definition of “employee” in the context of the California Industrial Welfare Commission (“IWC”) Wage Orders by adopting what is known as the “ABC test”. The Wage Orders cover employees working in almost every industry in the state.
Under this new standard for California, all workers in an industry covered by one of the Wage Orders are presumed to be employees and the burden is on the employer to prove that an individual is in fact an independent contractor, by establishing that:
A: 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 performance of the work and in fact;
B: The worker performs work that is outside the usual course of the company’s business; and,
C: The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
And, adding to the concern of California employers who utilize independent contractors to do their work, the Ninth Circuit Court of Appeals has just greatly increased the effect of this new definition by holding that it will be applied retroactively to all claims of misclassification of workers as independent contractors under the Wage Orders. (Vazquez v. Jan-Pro Franchising Int’l, Inc., 2019 U.S. App. LEXIS 13237 (9th Cir. May 2, 2019)). In that case, the Court of Appeals reversed the grant of summary judgment to an international janitorial franchising company in a class action lawsuit brought by several franchisees who claimed that they are not actual franchisees but were in fact employees of the franchising company.
Wage claims in California are subject to statutes of limitations up to four years, which means employers who made decisions about the status of workers as independent contractors can be subject to claims going back three years before the Dynamex decision was announced last year and changed the law.
What this means to you: Dynamex has had, and will continue to have, a significant impact on companies throughout California that rely on workforce configurations using independent contractors. The Ninth Circuit’s holding vastly magnifies this impact. Employers, even those outside California, should begin to reexamine their workforce models that rely on independent contractors in any way. Training of managers so that they know of, and can notify HR and Legal of, potential problems is very important to risk management. These skills are the focus of workplace training. Since more than 20 states already use some form of the ABC test, all employers, even those outside California, should begin to reexamine their workforce models that rely on independent contractors in any way.
Help your employer meet its requirements under the law and FEHA regulations by contacting us today at 800-458-2778 and booking Managing Within the Law training and Managing Overtime webinar for your supervisors and managers.
Information here is correct at the time it is posted. Case decisions cited here may be reversed. Please do not rely on this information without consulting an attorney first.