California Court Broadens the Definition of Employee

In a recent case, the California Supreme Court broadened the definition of “employees” that are entitled to paid breaks and overtime benefits, as opposed to independent contractors, who are not.

Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, 2018 Cal.LEXIS 3152 (Cal.Apr. 30, 2018).

Previously, California courts employed a multi-factor test to determine an individual’s status as an employee or independent contractor, which asked “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”   Under this test, Courts examined several factors to determine whether an independent contractor relationship existed,  including the right of the employer to discharge the individual, the skill required for the particular position, the length of services, how the individual is paid, the intent of the parties, and several others factors.

But in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, the Court threw the old test out the window in favor of a more broad“ABC Test,” which presumes a worker to be an employee  unless:

  1. The individual is free from the employer’s control and direction;
  2. The Individual performs work that is outside the usual course of the employer’s business; and
  3. The Individual customarily engages in an independently established trade, occupation, profession, or business of the same nature as that involved in the work performed.

 

What This Means for California Employers

The Dynamex decision and the ABC test will have a tremendous impact on employers by shifting the status of many workers from independent contractors to employees.

For example, the second “B” prong of the ABC test requires employers to prove the worker performs work that is “outside the usual course” of the employer’s business.   If you operate a restaurant chain and have an independent contractor that provides janitorial services, then that person would not be held an employee under this prong, but what about companies operating in the gig economy, which offer services delivered by third parties?  If Uber is in the personal transportation business, then every independent driver is an employee under this prong, but if it’s a technology solutions provider that provides a mobile-based ride sharing platform to independent drivers, maybe the analysis would be different.

Note that Dynamex does not change the definition of independent contractor under federal law. Thus, an individual may be an employee under state law for overtime and paid break benefits, but not for federal purposes such as Social Security and payroll taxes.

 

Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.