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California’s top court adopts tougher IC misclassification test; could impact gig economy

California’s top court adopts tougher IC misclassification test; could impact gig economy

May 2, 2018

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The California Supreme Court may have made it more difficult to classify workers as independent contractors. And the impact could be felt in the gig economy, where independent contractors are used heavily by some firms.

California’s top court adopted the “ABC” test for determining whether workers are independent contractors or employees in an opinion reached Monday. The state had used the multifactor “Borello” test since 1989.

Independent contractors are commonly used by staffing buyers and on demand, gig economy firms such as Uber and Lyft. But some say the ruling could mean more lawsuits.

The ruling calls into question “numerous existing independent contractor relationships in California, exposing companies to liability and paving the way for a new wave of wage-hour class actions by making it easier to establish commonality and predominance,” wrote Erin Norris Bass of law firm Steptoe & Johnson in a post on Lexology.

The “Wage and Hour Defense Blog” by law firm Epstein Becker Green cautioned employers to review their independent contractor relationships.

But Monday’s ruling was lauded by the National Employment Law Project as cracking down on independent contractor misclassification.

“It means that companies in industries from construction to tech to homecare and trucking will no longer be able to dodge minimum wage laws by pretending that the workers who form their workforces are somehow not their employees,” Rebecca Smith, director of the Work Structures program at NELP, said in a statement.

“In particular, businesses in the on-demand economy will no longer be able to push costs and risks downstream to workers and profits upstream to their CEOs,” Smith said. “It’s a clear message to them that the gig is up in California.”

The case at hand involves delivery drivers from Dynamex Operations West Inc., a nationwide package and document delivery company. The company treated drivers as employees until 2004, when it switched the drivers to independent contractor status.

Drivers claim in the suit they were misclassified and sought class-action status.

The claim before the Supreme Court involved only whether the lower court was correct in granting class-action status. The Supreme Court upheld the lower court, but in its decision adopted the ABC test.

According to the opinion, the ABC test presumptively considers all workers to be employees. Workers can only be classified as independent contractors if all these conditions are met:

“(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.”

The Dynamex case is Dynamex Operations West Inc. v. The Superior Court of Los Angeles County, Charles Lee et al, Case No. S222732.