Have you ever wondered why two people can be doing the exact same job but one of them is classified as an “employee” while the other an “independent contractor”? The answer is simple: A workforce comprised of independent contractors is far less expensive for the employer. Businesses are required to make certain expenditures for employees but there is no similar requirement for independent contractors. For example, businesses are required to buy workers compensation insurance for employees, but not for independent contractors. Similarly, while businesses have to pay payroll taxes for employees they do not have to do so for independent contractors. For such reasons businesses often prefer to classify workers as independent contractors instead of employees.
If the relationship between the business and the worker is truly that of an independent contractor then it is both legal and appropriate to classify them as such. If on the other hand the business incorrectly classifies a worker as an “independent contractor” it could be robbing the worker of important rights. Because “independent contractors” are not covered by California’s wage and hour laws they are not entitled to things like minimum wage and overtime compensation.
To determine whether a worker is an employee or instead an independent contractor for claims asserted under a California Wage Order, the California Supreme Court recently adopted the simplified “ABC” test in the important case of Dynamex Operations W. v. Superior Court, (2018) 4 Cal. 5th 903. Under the ABC test the burden is placed on the business to prove that the worker is an independent contractor rather than an employee. If the business fails to satisfy each prong of the test, the worker will be presumed to be an employee. To meet its burden under the ABC Test, a business must generally establish three things:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work; and
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently-established trade, occupation, or business of the same nature as the work performed.
Does the ABC test always provide the answer to the answer of whether a worker is an independent contractor or an employee? The answer is “No!” Since different aspects of the relationship between a business and its workers are governed by different laws there is no one-size fits all test. If you suspect that you might have lost wages or other employment benefits because you were misclassified as an “independent contractor” when you should have been deemed an “employee” you would be well advised to seek guidance and counsel from an experienced employment attorney in your State.
LEGAL DISCLAIMER: The information provided here is not legal advice. The Akopyan Law Firm does not provide legal advice unless and until it is formally retained, and an attorney client contract is signed. Each case is unique. The laws may or may not apply to your particular situation. This should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. Some jurisdictions may have laws and regulations that differ substantially from one another. The Akopyan Law Firm does not provide legal services, or practice law outside of the State of California. You should always consult an attorney in your jurisdiction regarding any specific legal issue.