California Supreme Court Decision Narrows Classification of Independent Contractors

A decision handed down by the California Supreme Court on 30 April 2018 may make it more difficult for 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
2. That the worker performs work that is outside the usual course of the hiring entity’s business
3. That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed

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.

For more information about classification of employees and independent contractors in California and elsewhere, please contact your Ally Law labor and employment lawyer.

Click here to read the full article by Candice S. Liao of Ally Law member firm Musick, Peeler & Garrett LLP.