Companies that engage flexible workers in California will soon be required to comply with parameters much stronger than federal guidelines to determine contractor classification. In April 2018, Dynamex Operations West, Inc. v. Superior Court adopted what is known as the ABC test for determining worker classification. That test requires a worker to be classified as a contractor if the person is: A) free from the control of the hiring entity, B) performs work that is not central to the hiring organization’s business, and C) is customarily engaged in an independently established trade of the same type of work performed for the hiring entity.
A separate case in 2019 ruled that the ABC test for worker classification should apply retroactively. That decision means employers need to determine whether workers were classified correctly prior to the April 2018 Dynamex ruling. More recently, the California governor passed legislation codifying the Dynamex ruling and making it harder for employers to classify workers as independent contractors, beginning on January 1, 2020. Many interests, including companies in the state like Uber that stand to see their business model dramatically change, are working to establish exceptions to the regulation.
Takeaway: The new law increases the pressure on companies to prove their independent contractors are not employees, and it may create issues across industries beyond gig economy companies such as Uber. Organizations should look to track and assess the classification of their independent contractors, even if they suspect they may be exempt from the new regulations as details are still being determined.
This update contains general information only, and AGS is not rendering legal advice. Before making any decision or taking any action that may affect your business, you should consult qualified legal counsel. AGS shall not be responsible for any loss whatsoever sustained by any person or company who relies on this update.