California Supreme Court Decision April 2018: Employee or Independent Contractor?

The California Supreme Court delivered a decision on April 30, 2018 that will affect all California business segments, including insurance. In Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, the court established the standard for determining whether workers in California should be classified as employees or independent contractors. The Supreme Court decision concluded that in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC test” to distinguish employees from independent contractors.

To qualify as an independent contractor, an employer needs to prove the following:

  • that the worker is free from the control and direction of the hirer in connection with, the performance of the work, both under the contract for the performance of such work and in fact;
  • that the worker performs work that is outside the usual course of the hiring entity’s business; and
  • 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.

It is the employer’s burden to satisfy the three prerequisites to establish that the worker is an independent contractor. If it fails to establish any one, the worker is categorized as an employee, rather than an excluded independent contractor, under the wage order.

Based on this decision, companies operating in California should make sure to review the above “ABC test” to verify that their independent contractors are classified properly.

– Tom Wold, Territory Marketing Manager in CA