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Is Independent Contractor Status Dead in California? | FFS Insights

June 26, 2018

In late April 2018, the California Supreme Court issued a decision that set out what the court believed was a simpler, clearer test for determining whether a worker is properly classified as an independent contractor under the California Wage Orders – and which most commentators have opined all but kills most independent contractor relationships in California.  The so-called “ABC test” that will now be used to evaluate the “suffer or permit to work” definition of “employ” presumes that all workers are employees, unless the hiring entity can meet its burden of proof to establish each of the following three requirements: 

  1. That the worker is free from the control and direction of the hirer in connection with the performance of work, both under any contract for the performance of that work and in fact;
  2. That the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

At the same time, the court recognized that “suffer or permit to work” is a term of art that cannot be interpreted literally in a manner that would encompass within the employee category the type of individual workers, like independent plumbers or electricians, who have traditionally been viewed as genuine independent contractors who are working only in their own independent business.

As the plaintiffs’ bar sharpens its pencils for what is anticipated to be an avalanche of lawsuits and class actions claiming misclassification, there are many questions that will have to be addressed by the courts, or possibly the state legislature, e.g., whether the new test is retroactive, whether it applies to employment laws or regulations that are not specifically part of the Wage Orders, whether it applies to licensed employees such as real estate agents who have traditionally had the freedom to enter into independent contractor relationships with brokers, whether it applies to loan-out companies, etc.

Risk-adverse hiring entities will promptly reclassify suspect independent contractors, although we anticipate that many entities will have trouble reconciling their business models with this new test.  In addition, many workers who have and want to continue to have the freedom to provide services on an independent contractor basis will be dismayed at being squeezed into an employment relationship.  

We can assist you in evaluating existing or potential independent contractor relationships and provide ideas regarding how to minimize triggering lawsuits as the result of a reclassification.   

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This alert is made available for educational purposes and to provide general information on current legal topics, not to provide specific legal advice. The publication of this alert does not create any attorney-client relationship and should not be used as a substitute for competent legal advice from a licensed professional attorney.