An employee is not the same as an independent contractor, and this distinction carries important legal consequences in California labor law. It is important to realize that you cannot classify a laborer as an employee or an independent contractor by simply labeling him as such – a court makes that distinction.
Employee/independent contractor disputes typically arise when a laborer seeks to be classified as an employee rather than an independent contractor in order to take advantages of the many legal benefits offered to employees that are unavailable to independent contractors. When a dispute erupts, the odds are rather stacked in favor of the laborer.
The ABC Test
In the April 30, 2018 case Dynamex Operations West, Inc. v. Superior Court (Lee), the Supreme Court of California formulated the “ABC test” to determine whether a laborer is an employee or an independent contractor. This test significantly favors laborers who wished to be classified as employees, thereby placing additional burdens on employers.
The three prongs of the ABC test to prove that a laborer is an independent contractor are:
The laborer must be free to control and direct the task assigned to him, both in the work contract and in actual performance;
The work done is outside the scope of the company’s usual business (a plumber is called in to fix the sinks of a software designer, for example); and
The laborer is habitually engaged in “an independently established trade, occupation, or business.”
The company must establish all three of the foregoing criteria in order to prove that the laborer is an independent contractor. If it fails to prove even one of them, the laborer will be treated as an employee with all of the corresponding benefits.
Consequences of an Employee Designation
The California Wage Orders provide employees with a multitude of rights that are unavailable to independent contractors, including:
Minimum wage of $11.00/hour for companies of 26 or more employees and $10.50/hour for companies of 25 or fewer employees (this figure will rise to $15.00/hour by 2023)
Extra pay for overtime hours
Mandatory meal and rest periods
The foregoing is just the tip of the iceberg. Keep in mind that California’s Wage Orders are industry-specific – the requirements for the manufacturing industry are different from the requirements of the motion picture industry, for example. California wage laws are typically friendlier to the employee than federal laws are. And when they are, they prevail over federal law.
Better to Seek Advice Early Than Pay the Price Later
Labor and employment are the heart of almost any business. They also happen to be among the most heavily regulated areas in all of business law. Our lawyers enjoy extensive experience in California labor and employment law. We provide labor and employment services to startups, SMEs, nonprofits, and Fortune 500 companies.
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