Independent Contractor Misclassification

Recently, in a lawsuit named Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court simplified the legal test for who is an “employee.” The test, called “ABC,” requires hiring companies to prove:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work; 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 the work performed for the hiring entity.

If the company cannot prove all three of these requirements, then the worker is an employee and may[1] benefit from many of the protective laws that govern the workplace.  Many companies will likely fail the “B” requirement because their so-called “independent contractors” provide the very service or product that the companies sell to their customers.

For some workplace protections, California courts may apply the “Borello[2] test” to decide if a worker is really an employee or “independent contractor.” That test looks at how much the hiring company has the “right to control” the work along with other secondary factors. Courts ask, for example, if the company can terminate the contract at its discretion, tell the worker how to perform his/her duties, or set other rules the worker must follow.  Control over how the work is done is also key to whether overtime and minimum wage requirements apply under the federal Fair Labor Standards Act, which looks to the “economic realities” to decide if the worker is dependent on the hiring company to make a living.

Companies that rely on so-called “independent contractors” to make their products or provide their services will find it difficult to prove those workers are legally “independent contractors” under the “ABC” and other legal tests. For instance, drivers working for delivery, logistics, and passenger transport companies are likely employees under the law, regardless of what their contracts might say. Similarly, companies often misclassify product distributors (food and other items) and installers (appliance, flooring, etc.) as “independent contractors,” because the work performed is integral to those companies’ core business and the companies retain tight control over the work to ensure customer satisfaction.