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CA Supreme Court: 2018 independent contractor rule is retroactive

| Mar 11, 2021 | Employment Law

In California, it has been hard to tell who is legally considered an independent contractor vs. an employee.

The distinction is significant. Independent contractors are not eligible for many workplace protections that employees take for granted, such as:

  • Workers’ compensation
  • Unemployment insurance
  • Employer-paid payroll taxes
  • Anti-discrimination laws
  • The minimum wage and overtime
  • Employer-sponsored benefits like health insurance
  • Employer reimbursement for business expenses

Over the last decade or so, some companies have “disrupted” the traditional employment model by hiring independent contractors to do the main work of their businesses. This has been particularly common in the “gig economy,” where contractors perform primary business functions on a queued basis.

In 2018, the California Supreme Court handed down a decision called Dynamex Operations West, Inc., v. Superior Court of Los Angeles which addressed when it is legal for a company to use independent contractors instead of employees.

Under Dynamex, workers could only be classified as independent contractors when:

A. The hiring entity doesn’t directly control the worker
B. The work being done falls outside the hiring entity’s usual course of business, and
C. The worker is customarily engaged in an independently established trade occupation or business of the same nature as the work performed

This was a landmark ruling. It made perfectly clear that California law did not allow companies to bring in independent contractors to perform their core business functions. It upended the gig economy’s disruption of work.

Then, in 2019, Assembly Bill 5 was passed. Assembly Bill 5 specifically allows the gig economy model in certain cases, including many typical gig economy situations.

However, Assembly Bill 5 does not apply to all workers, and California seeks to prevent the misclassification of employees as independent contractors. Many people who are told they will be working as independent contractors could be legally employees under the Dynamex test.

Recently, the California Supreme Court expanded the reach of the Dynamex ruling. In a case that was filed before Dynamex was issued, a court had applied the test from an older case called Martinez v. Combs. However, the Martinez test had resulted in inconsistent outcomes.

The high court ruled that the Dynamex test should be applied to any remaining pending cases involving similar classification questions.

Dynamex, therefore, remains central to the question of proper employee classification even after the passage of Assembly Bill 5.

If you have been told you are an independent contractor, there is a chance you are legally an employee instead. This question is currently being litigated. Leigh Law Group can help you understand the current state of the law and your legal options.