Late last week, the California Supreme Court handed down its decision in Dynamex Operations West v. Superior Court, No. S222732, potentially having far-reaching effects on the booming “gig economy.” The Court’s decision does away with the former Borello test for the classification of employees with regard to wage orders, and replaces it with a new test that makes it more difficult for employers to classify workers as independent contractors (and avoid certain requirements regarding wage and working conditions).
Under the decision, in order to classify a worker as an independent contractor, the court must show that the worker:
- Is free from the control and direction of the employer
- Performs work that is outside the hirer’s core business
- Customarily engages in an independently established trade, occupation, or business
Importantly, the burden of proof lies with the employer to establish each of these factors – if it does not, the worker is presumed to be an employee. In providing the rationale for the decision, Chief Justice Tani Cantil-Sakauye writes that, “When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor … there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification.”
While this decision is limited to the classification of workers with respect to wage orders, it very well could be a sign of things to come. To understand why this decision could have such a significant impact on the current employment climate, it is instructive to review the basics of how employees and independent contractors are different.
Independent Contractors vs. Employees – The Basics
An independent contractor is described as a worker who is in business on their own terms and is hired to accomplish a specific task. This working relationship is typically a bit more flexible and allows independent contractors to enjoy the freedom to engage in many projects. It also allows such independent contractors to work on a freelance basis for several different companies.
On the other hand, an employee is a person who was employed by a person, business, or government agency and hired to do a specific job. These workers have an employee-employer relationship in which the employer maintains some degree of control over the employees. These controls include details like working conditions, hours, and set wages. Not all workers in an organization may be employees, as some organizations frequently work with volunteers as well.
Important Differences Between Employees and Independent Contractors
Some employers try to categorize their employees as independent contractors – even when they are clearly trying to fit a round peg into a square hole. They often do this with the motive to avoiding payroll taxes or to evade paying minimum wages and overtime. The other reason why some employers work strictly with independent contractors is to avoid compliance with the need to provide employees with breaks for meals and rest, as well as being responsible for other expenses that the employees could incur while performing their job duties. By classifying employees as independent contractors, employers evade the responsibility of covering their employees, and the liability to make payments for unemployment insurance, disability, and social security.
The Misclassification of Employees Can Have Significant Consequences
Misclassifying employees as independent contractors can result in significant liability for employers. As a result, it is imperative for employers to make sure they are in compliance with the law – which requires staying on top of any changes to it. The most effective way to accomplish this is by retaining the services of an employment lawyer who will manage your compliance issues on your behalf, helping you minimize your exposure to liability for misclassifying your employees as independent contractors.’
Contact an Silicon Valley Employment Lawyer Today
If your company is facing legal employment issues, Kalia Law P.C should be the first resource you contact. Our experienced attorneys can help provide helpful legal advice on a variety of issues. Our services range from helping start-up businesses to protecting companies against infringements while giving the necessary legal security to help your company grow. Call our office today at 650) 701-7617 or contact us online to schedule a consultation.