Major Changes in California Law for Employers

This year the California Legislature passed new laws that drastically change the responsibilities of employers in California. What do the new laws mean for you as an employer?

Classification of Employees Versus Independent Contractors

The California Supreme Court issued a seminal ruling in Dynamex Operations W. v. Superior Court (2018) 4 Cal. 5th 903 on April 30, 2018. This case substantially limits the ability to classify individuals as independent contractors as opposed to employees. Under earlier case law, there were various elements to consider as to whether an individual could properly be classified as an independent contractor. In other words, there was wiggle room to argue that an individual should be classified as an independent contractor because there was vagueness in the “wage and hour” laws and regulations. This is no longer the case.

The California Supreme Court chose to clarify previous decisions regarding wage and hour regulations and recognized that the purpose of wage and hour laws are to (1) “[E]nsure that such workers are provided at least the minimal wages and working conditions that are necessary to enable them to obtain a subsistence standard of living and to protect workers’ health and welfare”; (2)

Protect those law-abiding businesses that comply with the wage and hour laws and regulations from the unfair competition of those businesses that do not comply; (3) Prevent the public at large from having to “assume the responsibility for the ill effects to workers and their families resulting from substandard wages or unhealthy and unsafe working conditions.”

The California Supreme Court applied the “ABC Test” and ruled that in order for an individual to be classified as an independent contractor, the hiring entity (i.e. the employer) must be able to prove all the following:

(A) that 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, (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 ….

The court clearly stated that the presumption is that a hired individual is an employee and that independent contractor status is narrowly applicable.

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