There have been disruptions in California barbershops, salons, tattoo shops, yoga studios, dance studios, and the like, after the recent California Supreme Court case, Dynamex Operations West, Inc. v. Superior Court of Los Angeles, reclassified who can work as an independent contractor.
The court imposed a new test, known as the ABC test, which determines whether an individual is an independent contractor, and includes the following:
- whether the worker is free of the control and direction of the hiring entity in the performance of the work (under contract and in fact),
- whether the worker performs work that is outside the usual course of the hiring entity’s business, and
- whether the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Free of control and direction of employer: If an employer requires and individual to perform certain tasks, has the individual obtain the employer’s permission before completing a task, can be disciplined for tardiness, or any company policy, then it is likely that the individual is an employee rather than an independent contractor. In contrast, if the individual sets their own hours, works without supervision, purchases materials with their own finances, and has declined an offer of employment, then it is likely that the individual is an independent contractor.
Performs work that is outside the usual course of the company’s business: If an employer hires an outside worker to perform tasks that the employer’s company does not perform in the usual course of the company business, such as an electrician who installs electrical wiring for a law firm, it is likely that the worker is an independent contractor. However, if the employer hires individuals to help with tasks that the company usually performs, such as “freelance” writers for a magazine company then the individuals will likely be employees.
Customarily engaged in an independently established trade, occupation, or business of the same nature as the work: When an individual has gone into business for himself and can demonstrate they have formed their own business, obtained applicable licenses, and created advertisements offering services to the public then it is likely that the individual is an independent contractor.
Many in the media, software, and music industries have also been affected by this reclassification. Business models and lifestyles will change drastically as most of these individuals get into these industries because the flexibility it provides.
Another hurdle for employers is that California law presumes the existence of any employer-employee relationship and hirers have the burden to prove that an individual is an independent contractor rather than an employee per Garcia v. Border Transp. Group, LLC.
To avoid costly misclassification cases, hirers should conduct an audit of their independent contractor classifications otherwise they may be subject to wage and hour penalties for unpaid wages, unpaid overtime, missed meal and/or rest breaks, penalties for back taxes, and other monetary penalties.
Keep in mind that to determine if an individual is an independent contractor, one must employ the ABC test and not just the use of an independent contractor agreement. Should you or your company need assistance in this matter, contact The Myers Law Group.