California tightens up definition of ‘independent contractor’ California tightens up definition of ‘independent contractor’

California tightens up definition of ‘independent contractor’
18 May 2018

The California Supreme Court has just made it harder for employers to classify their workers as independent contractors.

According to the LA Times, over recent years, the hiring of workers as independent contractors — not subject to government rules on minimum wages, overtime and rest breaks — has exploded and currently applies to 8.4% of the US workforce.

But the Court has now ruled that to classify someone as an independent contractor, businesses must be able to show that the worker is free from being controlled and directed by their employer. They must also perform work that is outside of the hirer's core business and customarily engage in “an independently established trade, occupation or business”.

Workers may be denied employee status “only if the worker is the type of traditional independent contractor — such as an independent plumber or electrician — who would not reasonably have been viewed as working in the hiring business”.

Possible examples of independent contractors include plumbers who are temporarily hired by a store to repair a leak, or an electrician who is taken on to install a line. But a seamstress who works at home to make dresses for a clothing manufacturer from cloth and patterns supplied by the company, or a cake decorator who creates custom-designed cakes on a regular basis would both be counted as employees.

According to the California Labor Commissioner's website, the misclassification of workers as independent contractors costs the state roughly US$7 billion in lost payroll taxes each year.

The most recent ruling came following a class-action lawsuit against Dynamex Operations West, a package and document delivery company that claimed to have misclassified its delivery drivers as independent contractors rather than employees. While the ruling did not resolve the case, it did serve to define independent contractors for the benefit of lower courts that are grappling with the issue.

But Michael Chasalow, a professor at the University of Southern California’s Gould School of Law, cautioned that the ruling only applied to wage orders, which set rules on minimum pay and basic working conditions such as meal and rest breaks. It did not apply to workers' compensation or tax purposes, he said — opening up the possibility that employers could classify workers in different ways for different purposes.

The ruling also does not touch upon the Uber and Lyft cases, which are now being heard in the federal courts, as to whether drivers should be reimbursed for fuel, car repairs and insurance.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

The California Supreme Court has just made it harder for employers to classify their workers as independent contractors.

According to the LA Times, over recent years, the hiring of workers as independent contractors — not subject to government rules on minimum wages, overtime and rest breaks — has exploded and currently applies to 8.4% of the US workforce.

But the Court has now ruled that to classify someone as an independent contractor, businesses must be able to show that the worker is free from being controlled and directed by their employer. They must also perform work that is outside of the hirer's core business and customarily engage in “an independently established trade, occupation or business”.

Workers may be denied employee status “only if the worker is the type of traditional independent contractor — such as an independent plumber or electrician — who would not reasonably have been viewed as working in the hiring business”.

Possible examples of independent contractors include plumbers who are temporarily hired by a store to repair a leak, or an electrician who is taken on to install a line. But a seamstress who works at home to make dresses for a clothing manufacturer from cloth and patterns supplied by the company, or a cake decorator who creates custom-designed cakes on a regular basis would both be counted as employees.

According to the California Labor Commissioner's website, the misclassification of workers as independent contractors costs the state roughly US$7 billion in lost payroll taxes each year.

The most recent ruling came following a class-action lawsuit against Dynamex Operations West, a package and document delivery company that claimed to have misclassified its delivery drivers as independent contractors rather than employees. While the ruling did not resolve the case, it did serve to define independent contractors for the benefit of lower courts that are grappling with the issue.

But Michael Chasalow, a professor at the University of Southern California’s Gould School of Law, cautioned that the ruling only applied to wage orders, which set rules on minimum pay and basic working conditions such as meal and rest breaks. It did not apply to workers' compensation or tax purposes, he said — opening up the possibility that employers could classify workers in different ways for different purposes.

The ruling also does not touch upon the Uber and Lyft cases, which are now being heard in the federal courts, as to whether drivers should be reimbursed for fuel, car repairs and insurance.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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