At the end of April 2018, the California Supreme Court issued an important decision affecting classification of workers in Dynamex Operations West, Inc. v. Superior Court. This decision impacts California startups and small businesses in so far as many hires may be improperly classified as independent contractors under the new standard.
Under Dynamex, there is a presumption that all workers are employees instead of contractors. Businesses carry the burden of establishing that such classification. Finally, the Supreme Court adopted a new “ABC test,” and held that employers may classify a hire as an independent contractor only if the employer can demonstrate that the worker in question satisfies each of three conditions:
(a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
(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 of the same nature as that involved in the work performed.
This decision not only expands the definition of “employee,” but also makes it even harder for California startups and small businesses to classify their hires as “independent contractors.” As a result, all California businesses with “independent contractors” on payroll should conduct a thorough evaluation of such workers to determine whether they are properly classified.
In addition to the new pronouncement from the California Supreme Court, startups and small businesses should heed the existing regulations in effect in 2018 when hiring, interacting with, and managing their workers:
The foregoing list is not exhaustive or comprehensive. Smith Shapourian Mignano PC is available to answer any questions or concerns you may have regarding your workers.
This blog does not constitute solicitation or provision of legal advice, and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter in a timely manner, as statutes of limitations may bar your claim.