While the status of independent contractors versus employees seems to be in a constant state of flux in California, one thing is certain: fewer and fewer workers actually qualify for IC status. Indeed, in a ruling that could once again change the status of workers across the state, the California Supreme Court recently made it more difficult for employers to classify their workers as independent contractors. The Court created a new test that is modeled after the so-called ”ABC” test used in Massachusetts, widely viewed as the toughest test in the country for ICs. For more on the difference between an independent contractor and an employee, click here.
The New Independent Contractor Test
According to the CA Supreme Court, the new independent contractor test in California reads as follows:
“The [new] ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (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.
Certainly, the Court’s unanimous decision has implications for the growing gig economy (think: Uber, Lyft and other app-driven services), but it is likely to extend to nearly every employment sector. As a result, companies in both traditional and gig economy industries that lawfully created IC relationships in California may need to restructure or reclassify their 1099ers in order to remain compliant with California law. Discuss your worker classification questions with experienced legal counsel.
For various reasons, the hiring of workers as independent contractors exploded in recent years. A 2016 study by Harvard and Princeton universities estimated 12.5 million people were considered independent contractors, or 8.4% of the U.S. workforce. The benefits to employers and workers alike are many, however, in light of this recent ruling, it will become more difficult for your company to enjoy those benefits.
To discuss your worker classification issues, contact experienced employment lawyer Drew E. Pomerance today.
