Society for Human Resource Management (SHRM)
April 9, 2019
By: Toni Vranjes
“When the California Supreme Court issued its 2018 ruling in Dynamex Operations v. Superior Court, the decision jolted the business world by making it more difficult to designate workers as independent contractors.
The decision was welcomed by labor, but it sparked great worry among employers. For one thing, the ruling opened the door to misclassification lawsuits against ride-hailing companies that rely on independent contractors for their business models to work. Now, both sides are closely watching a California bill, AB 5, that would codify the court decision and clarify how it would be applied to jobs in the state.
Although the bill would exempt certain occupations—such as doctors, investment advisors and some direct sellers—gig-economy workers aren’t included in the exemptions. The business community is trying to change that, but the bill’s sponsor, Assemblywoman Lorena Gonzalez, D-San Diego, doesn’t want to exclude such workers from the bill’s coverage.
“Individuals are not able to make it on three side hustles,” she said. “That shouldn’t be the norm. That shouldn’t be accepted.” Workers who are properly classified as independent contractors are not entitled to certain employment benefits such as minimum wage and overtime pay.
Stringent Contractor Test
In the Dynamex decision, the court adopted a new test for determining whether a worker should be designated as an employee or independent contractor under the California wage orders.
Under the “ABC” test, a worker is presumed to be an employee unless the employer can show all of the following:
- 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.
- The worker performs tasks that are outside of the usual course of the hiring entity’s business.
- The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.
The second factor is a difficult standard to meet, said Robert Cooper, an attorney with Buchalter in Los Angeles. Employers will have to show that the work performed is outside of the usual course of the business. So it would be difficult for a software development company to show that a programmer was properly classified as an independent contractor, but it may be able to show that a plumber is a contractor.”
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