The California Supreme Court recently issued a ruling that should cause every California employer utilizing the services of independent contractors to consider whether those workers should be reclassified as employees subject to California’s wage and hour regulations.
In Dynamex Operations W. v. Superior Court, 4 Cal.5th 903 (2018), the Court made it significantly more difficult for employers to classify their workers as independent contractors and thereby avoid complying with many federal and state wage, hour and working condition regulations. The Court held that when an employer is deciding whether to classify a worker as an independent contractor as opposed to a common law employee subject to wage and hour rules and regulations, the employer should begin by presuming that the worker is a common law employee. To overcome this presumption and classify a worker as an independent contractor, the employer must then be able to establish all of the following elements:
1. The employer does not control or direct the performance of the worker’s work.
2. The worker performs work that is outside the usual scope of the employer’s work. This requirement will preclude man “gig economy” employers such as Uber and Lyft from classifying their employees as independent contractors since their employees are performing work that is the bread and butter of their employer’s business.
3. The worker is regularly engaged in a trade, occupation or business that he or she independently established that is of the same nature as the work he or she is performing for the employer.
The Court’s opinion in Dynamex should cause every California employer to immediately reassess whether they are properly classifying their workers as independent contractors since failure to properly classify workers is one of the leading causes of costly class action litigation and regulatory fines and penalties.