On April 30, 2018, the California Supreme Court issued its long-awaited decision in Dynamex Operations West, Inc. v. Superior Court, announcing the legal standard for determining whether a worker in California should be classified as employee or as independent contractor. In so doing, the Court held that there is a presumption that individuals are
employees, and that the burden of proof is on the entity that hired the worker to establish that the individual is properly classified as an independent contractor under the “ABC test” utilized in some other states.
The Court held that the hiring entity has the burden to establish that a worker is an independent contractor. To satisfy this burden, the hiring entity must establish each of the following three factors under the “ABC test”:
(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; 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 the work performed.
Businesses in California that hire independent contractors will want to carefully review this important classification issue under the “ABC test” to determine whether any such individuals should be reclassified as employees and placed on payroll. A key issue is whether the work being performed is outside the usual business carried on by the hiring entity. Misclassification of an employee as an independent contractor may lead to significant liability, penalties and litigation.
Click here for the Cal. Supreme Court decision.