Labels and Reality: Independent Contractors in California
“The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.”
If companies and individuals could simply sign a piece of paper to establish whether someone is an employee or independent contractor, companies could avoid employee-related costs by having a workforce made up of independent contractors. Paying minimum and overtime wages, buying workers compensation insurance, and providing rest and meal breaks all all significantly more expensive than using independent contractors. Furthermore, having a workforce made up entirely of independent contractors can help protect companies from discrimination, harassment and retaliation claims.
California’s Multi-Factor Approach Once Helped Companies Use Independent Contractors in the Main Work of their Business
Until recently, an independent contractor agreement was one of over a dozen factors used by the courts to determine a worker’s status. The most important factor was the “right to discharge at will, without cause.” As the California Supreme Court ruled in S.G. Borello & Sons, INC.,v. Department of Industrial Relation other factors would include:
- whether the one performing services is engaged in a distinct occupation or business;
- the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
- the skill required in the particular occupation;
- whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
- the length of time for which the services are to be performed;
- the method of payment, whether by the time or by the job;
- whether or not the work is a part of the regular business of the principal;
- whether or not the parties believe they are creating the relationship of employer-employee;
- the alleged employee’s opportunity for profit or loss depending on his managerial skill;
- the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
- the degree of permanence of the working relationship; and
- whether the service rendered is an integral part of the alleged employer’s business.
Today, following the Supreme Court’s decision in Dynamex and the passage of Assembly Bill 5, employment status is to be determined by the ABC Test, not the multi-factor test. The ABC Test states that a hiring party “employs” a person (as an employee) unless it can prove each of the following:
A. The hired person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
B. The hired person performs work that is outside the usual course of the hiring entity’s business.
C. The hired person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The burden of proving the existence of an independent contractor relationship requires the employer to demonstrate its classification is proper once a worker presents sufficient evidence that he or she performed work for the company. Determining the proper classification of a worker is no longer so extremely fact intensive as it was under the Borello test.
If you have questions about this issue or any other employment matter, please reach out to Patrick Kitchin at 415-677-9058 or by email to firstname.lastname@example.org