CA Supreme Court Ruling Impacts Gig Economy

When is a worker an employee and when is a worker an independent contractor? The California Supreme Court answered with verve in saying that a worker is an employee until definitively proven otherwise. In its recent Dynamex decision, the court ruled that a worker is an employee when the following three conditions exist:

• The entity exercises control over the individual’s hours, wages, or working conditions.
• The entity “suffers,” or permits, the individual to work.
• The entity engages the individual, thereby creating a common law employment relationship.

Further, the court posited the "ABC Test" in determining a worker's status; to wit, all workers in California are presumed to be employees under the test. To prove otherwise, the hiring entity must establish the following:

1. 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.
2. That the worker performs work that is outside the usual course of the hiring entity’s business.
3. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The court gave examples: A plumber doing a one-time repair job for a business is an independent contractor, while a seamstress working at home making dresses for a clothing manufacturer using that company's designs and materials is an employee. "When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor ... there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification," Chief Justice Tani Cantil-Sakauye wrote for the court. Dynamex, a nationwide delivery service, in 2004 reclassified its drivers as independent contractors to save money. The next year, one driver filed suit that the action was in violation of California labor codes. Eventually, the lawsuit was certified as class action, and the case went from trial court to appeals court to Supreme Court as Dynamex fought for its right to reclassify its workers as independent contractors. The Supreme Court did not resolve the lawsuit but did establish a new standard for defining employees and independent contractors in the state, a standard that could have huge implications for the emerging gig economy and the state's entertainment industry, among others.