In a groundbreaking decision, the California Supreme Court adopted a new legal standard today that will make it much more difficult for businesses to classify workers as independent contractors, drastically changing the legal landscape across the state.
The decision will directly affect the trucking and transportation industry because the workers involved in the case were delivery drivers, but also has the potential to affect nearly every other industry—including the emerging gig economy. Specifically, the court adopted a new standard for determining whether a company “employs” or is the “employer” for purposes of the California Wage Orders.
Under the new “ABC” test, a worker is considered an employee under the Wage Orders unless the hiring entity establishes all three of these prongs:
A. 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;
B. the worker performs work that is outside the usual course of the hiring entity’s business; and
C. 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.
This decision not only expands the definition of “employee” under the California Wage Orders, it also imposes an affirmative burden on companies to prove that independent contractors are being properly classified. As a result of today’s decision, all California businesses with independent contractors will need to conduct a thorough evaluation of such workers to determine whether they are properly classified.
This decision is a seismic shift for California wage and hour law and class litigation. The court now imposes a burden on businesses to defend their classification of workers as independent contractors. Misclassification of such workers can result in significant legal exposure with respect to wage and hour compliance.
For more information, contact Jennifer at Premier Personnel at 916.989.7776