INDEPENDENT CONTRACTORS IN CALIFORNIA
How a business classifies its workers has become more important than ever, as businesses explore switching to independent contractors to reduce payroll costs, and as employees rely even more on healthcare benefits and eligibility for unemployment claims. Are you an employee who has been asked by their employer to become an independent contractor? Are you a business owner considering utilizing independent contractors? The Orange County business litigation attorneys at Brown & Charbonneau, LLP can help.
Why Does it Matter if a Worker is an Independent Contractor?
Courts have long struggled with the distinction between an “employee” and an “independent contractor,” but why does it matter? If you are a worker, it matters a great deal because your classification will directly impact things such as the benefits to which you are entitled, and the taxes you are required to pay. If you are a business owner, it matters because a worker’s classification will dictate whether or not you must carry workers’ compensation insurance on the worker and withhold taxes.
The Borello Test
For many years, California courts used the criteria developed in the case S. G. Borello & Sons, Inc. v. Department of Industrial Relations (Cal. 1989) to determine if a worker was an employee or an independent contractor. Referred to as the Borello test, the most important consideration was who “controlled” the work. In addition, eight secondary factors were considered, including whether the worker was engaged in a distinct occupation or business, the skill required in the particular occupation, whether the business supervised the work, and whether the business supplied the tools or materials used to perform the work.
The “ABC” Test
In 2018, in the case Dynamex Operations West, Inc. v. Superior Court (Cal. 2018), the California Supreme Court rejected the long-standing Bordello test and replaced it with a much more rigid test for determining whether a worker is an employee or an independent contractor. Under the test, referred to as the “ABC” test, the business bears the burden of proving that the worker satisfies all 3 of the following factors:
(A) The worker is free from control and direction of the hiring entity in connection with the performance of work, both under the contract for the performance of the work and in fact;
(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 performed.
A business’s failure to prove any one part of the “ABC” test will result in the worker being classified as an employee under California wage orders.
As business owners continue to respond to the COVID-19 pandemic, the use of independent contractors may be considered as an important tool to address the financial needs of the company. At the same time, workers whose reliance on employment benefits has now become critical during the COVID-19 pandemic may be faced with improper reclassifications as employees or wrongful terminations.
Getting Legal Help
Whether you are a business owner or an employee, if you have additional questions or concerns about who qualifies as an independent contractor in the State of California, our Irvine based team of experienced business litigation attorneys and trial specialists are here to help. Contact Brown & Charbonneau, LLP today by calling 714-406-4397 to schedule your appointment or email us at firstname.lastname@example.org.
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