Employee v Independent Contract Determination
Generally, a person performing services for another is presumed to be an employee pursuant to Labor Code section 3357. Borello & Sons v DIR (1989). This means that unlike in most wrongful termination or discrimination cases, where the burden of proving a violation is on the aggrieved employee, in claims for misclassification an employer carries the burden of proving a valid independent contractor status.
The widely discussed. recent California Supreme Court decision in Dynamex Operations West v Superior Court of Los Angeles makes it clear that properly classifying a worker as a contractor now is even more difficult than before, under the the new "ABC" test. Under this test, a workers is presumed to be an employee unless the employer proves that: (A) the worker is free from the control and direction of the hiring entity 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 the work performed.
Note that all of the above three factors have to be proven in order for a worker to be properly classified as a contractor.
Satisfying this tests is going to be particularly difficult because of factor (B). For instance, any professional, such as a recruiter who works for a recruiting agency, an accountant who works for an accounting firm, or a consultant who workers for a company which is in consulting business will not fit into factor (B) and is therefore an employee, since they do the same work that the company itself offers. The same applies to drivers of trucking, transportation and delivery companies, since these drivers do exactly that which the company offers as its service.
So, who can safely be classified as a contractor under this ABC test? If, for instance, you have any type of business and you hire a firm to do a financial audit at your office, that firm regularly provides audit services, you don't control their work in any way, i.e. you don't tell them when to come in, where to work out of, and how to do their job, and you just pay their invoice, then a proper contractor relationship likely exists because the above factors are easily satisfied.
When it comes to employees in the computer / software industry, the moment the court or DLSE learns that the employee in question had set hours, had to report to the office, used employer's equipment (i.e. desk, computer, etc.) and had a manager who supervised / directed his work, it will be very hard, if not impossible, to show a valid contractor relationship. And, the fact that there is a signed independent contractor agreement in place is of little importance, and will not make much difference.
Consequences of Misclassification
If an employee is improperly misclassified as a contractor, he will be entitled to any unpaid overtime, unpaid social security and other payroll taxes, any payments and penalties associated with unemployment insurance and workers comp insurance if applicable. Any employer who is not sure about whether they can classify a particular worker as a contractor should run their specific situation by a competent employment attorney to make sure they don't set themselves up for liability where it can and should be avoided.
If you are thinking about complaining to your employer about being possibly misclassified as an independent contractor, be sure to read this posting.
The widely discussed. recent California Supreme Court decision in Dynamex Operations West v Superior Court of Los Angeles makes it clear that properly classifying a worker as a contractor now is even more difficult than before, under the the new "ABC" test. Under this test, a workers is presumed to be an employee unless the employer proves that: (A) the worker is free from the control and direction of the hiring entity 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 the work performed.
Note that all of the above three factors have to be proven in order for a worker to be properly classified as a contractor.
Satisfying this tests is going to be particularly difficult because of factor (B). For instance, any professional, such as a recruiter who works for a recruiting agency, an accountant who works for an accounting firm, or a consultant who workers for a company which is in consulting business will not fit into factor (B) and is therefore an employee, since they do the same work that the company itself offers. The same applies to drivers of trucking, transportation and delivery companies, since these drivers do exactly that which the company offers as its service.
So, who can safely be classified as a contractor under this ABC test? If, for instance, you have any type of business and you hire a firm to do a financial audit at your office, that firm regularly provides audit services, you don't control their work in any way, i.e. you don't tell them when to come in, where to work out of, and how to do their job, and you just pay their invoice, then a proper contractor relationship likely exists because the above factors are easily satisfied.
When it comes to employees in the computer / software industry, the moment the court or DLSE learns that the employee in question had set hours, had to report to the office, used employer's equipment (i.e. desk, computer, etc.) and had a manager who supervised / directed his work, it will be very hard, if not impossible, to show a valid contractor relationship. And, the fact that there is a signed independent contractor agreement in place is of little importance, and will not make much difference.
Consequences of Misclassification
If an employee is improperly misclassified as a contractor, he will be entitled to any unpaid overtime, unpaid social security and other payroll taxes, any payments and penalties associated with unemployment insurance and workers comp insurance if applicable. Any employer who is not sure about whether they can classify a particular worker as a contractor should run their specific situation by a competent employment attorney to make sure they don't set themselves up for liability where it can and should be avoided.
If you are thinking about complaining to your employer about being possibly misclassified as an independent contractor, be sure to read this posting.
Watch The Video Below About Common Misclassification Of Employees In The Tech Industry
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