Are Independent Contractors Employees?
Whether a worker is categorized as an “employee” or an “independent contractor” has far-reaching implications. Among other things, a business must comply with numerous state and federal statues and regulations governing wages, hours, and working conditions when it comes to employees, but do not face such requirements for independent contractors. This often results in an employer attempting to classify a worker as an independent contractor rather than an employee in order to avoid compliance with the applicable statutes and regulations. It is estimated by the United States Department of Labor that the misclassification of employees as independent contractors has deprived federal and state governments of billions of dollars in tax revenue, and deprived millions of workers of labor law protections.
On Monday, April 30, 2018, the Supreme Court of California, in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County took on the specific question of what standard applies, under California law, in determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders. Dynamex concerns a document delivery company, who allegedly misclassified its drivers as independent contractors, resulting in a class action suit for unfair and unlawful business practices.
In Dynamex, when considering class certification, the trial court found that the drivers fit the definitions of employee provided in the relevant wage order. Dynamex appealed, arguing that the trial court erred in using the wage order definitions, and that the plaintiffs failed to show a commonality of interest that would justify class certification.
After considering Dynamex’s arguments, the Supreme Court ultimately affirmed the decision of the trial court, holding that the relevant test is one that places the burden on the employer to prove contractor status. To do so, an employer must show: “(a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (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 that involved in the work performed.”
This test is a departure from the previous widely-used test, which had covered the employee/contractor distinction for around 30 years. It has been speculated that this ruling could significantly impact California’s gig economy, including companies such as Lyft or Uber, shifting the burden to the companies to prove the independent contractor status of their drivers.