California Adopts New Worker Classification Rule

May 8, 2018|

On April 30, the California Supreme court decided a case (Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County) in which a California employer was charged with misclassifying delivery drivers as independent contractors. In their ruling on the case, the Court decided to adopt the “ABC test,” which requires companies to consider workers employees unless they prove that the workers should be appropriately classified as independent contractors.

Originally established by the Supreme Court of New Jersey (Hargrove v. Sleepy’s LLC, 2015) and subsequently adopted by several other states, the ABC test presumes that a worker is classified as an employee unless all three of the following conditions are met:

  1. The worker is free to control and direct how the work is performed, AND
  2. The work is conducted outside the usual course of the hiring business, AND
  3. The worker routinely engages in an independent trade or business related to the work performed.

A long-time focus of both state and federal governments, the proper classification of workers is critically important because employees misclassified as contractors are denied labor law benefits like minimum wage and overtime compensation protections. Additionally, businesses who misclassify workers frequently avoid payroll-related taxes, unemployment insurance payments and compliance with many employment-related laws that regulate working conditions.

In light of this new ruling, companies in California, as well as companies with workers who conduct business in California, may need to revisit their policies and classification of workers to determine if any workers should be reclassified.

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