At the end of April 2018, the California Supreme Court rendered a landmark decision in Dynamex Operations West, Inc. v. Superior Court that makes it more difficult for businesses to classify workers as independent contractors, changing prior California Supreme Court case law on the subject.

Previously, the worker claiming misclassification as an independent contractor shouldered the burden to prove (s)he was an employee. Now, the worker is presumed to be an employee, and the hiring business must prove the worker is an independent contractor.

Additionally, the prior legal test was a multi-factor analysis that determined independent contractor status from a totality of the circumstances starting with the business’s right to control the manner and means of accomplishing the work, and then consideration of additional factors. To simplify independent contractor determination and discourage independent contractor status, the Dynamex court adopted a 3-part A-B-C test. If the employer fails any one of the three parts, the worker is an employee. The hiring business must prove:

A. the worker is free from the control and direction of the hirer in connection with the performance of the work, both factually and under the contract for the work;
B. the worker performs work that is outside the usual course of the hiring entity’s business; and
C. 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.

In Dynamex, a proposed class of delivery drivers sued Dynamex, a delivery company, for employee wage-hour violations. Dynamex countered that the drivers were independent contractors, not employees, and that class treatment was not proper anyway because the independent contractor analysis was too individualized. The court skipped part A (level of control) and approved certification of the lawsuit as a class action under its new A-B-C test because commonality existed under parts B and C since delivery drivers are a part of Dynamex’s usual business (deliveries) and the class members only drove for Dynamex. The simpler bright-line test adopted by the Dynamex court is an example of how much more challenging it will be for businesses to defend against independent contractor misclassification lawsuits.

The consequences of a business’s misclassification of a worker’s independent contractor status are severe and could expose the business to significant liability for, in among other areas, civil suits by injured workers for workplace injuries, penalties for failure to maintain workers’ compensation insurance, Labor Code penalties for misclassified independent contractor status, wage-hour liability for minimum wage, overtime, meal/rest break, and pay stub violations, and failure to pay required employer taxes and employee tax withholdings. Consequently, businesses must be quite careful not to misclassify their workers as independent contractors.

For any questions about this alert, you may contact Joseph Scudiero, Senior Vice-President & Chief Labor Counsel, at 818-955-4335 or jscudiero@ep.com or Scott Bishop, Vice-President – Employment Law, at 818-955-4336 or sbishop@ep.com.