Think Twice Before You 1099 a Subcontractor or Laborer by Marin Builders Member, Christine Lee of FMG LawJuly 30, 2018
California's New Independent Contractor Test
On April 30, 2018, the California Supreme Court issued a landmark decision in Dynamex Operations West, Inc. v. Superior Court, No. S222732, in which the Court adopted an extremely broad view of workers who will be deemed “employees” as opposed to “independent contractors” for purposes of claims alleging violations of California’s Wage Orders. This decision will undoubtedly lead to increased litigation challenging classification of workers across the state as employers will now have a much higher burden to defeat such claims.
Under the new “ABC” test set forth in Dynamex, a worker will be presumed to be an employee unless the hiring entity proves all of the following:
(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 and in fact; and
(B) The worker performs work that is outside the usual course of the hiring entity’s business; and
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work he or she performed for the principal.
An employer’s failure to establish any one of the three factors will result in a determination that the worker is an employee as a matter of law. The Court’s ruling specifically applies to claims asserted under the IWC Wage Orders, which impose obligations related to minimum wages, overtime, and required meal and rest breaks. It is presently unclear how the case applies to claims arising under other statutes.
We encourage all companies doing business in California to immediately evaluate classification of outside contractors or vendors. Under Dynamex, the vast majority of persons performing services for a company will be considered employees if they are performing work within the usual course of the company’s business, even if those individuals act autonomously and are free from control or direction of the hiring entity.
Therefore, we strongly encourage employers to consult with counsel to evaluate and consider reclassifying independent contractors or risk finding themselves on the losing end of an expensive and painful misclassification case.
If you have any questions or would like more information, please contact Christine Lee at firstname.lastname@example.org.Contact:Christine Lee, Partner(415) 352-6446
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