California Supreme Court changes the law of independent contractors, will affect thousands of companies in California.


“On April 30, 2018 the California Supreme Court decided a landmark case regarding the standards used to examine independent contractor relationships. In Dynamex v. Superior Court, the California Supreme Court declared a judicial crackdown against businesses that misclassify employees as independent contractors to save costs and avoid legal burdens (e.g., payroll taxes, workers compensation, and other legally requirements when an individual is an employee).

The new "ABC test" announced by the California Supreme Court will affect every California employer that utilizes independent contractors in their business.  The California Supreme Court stated that "hiring entities" must bear the burden of satisfying the new three-part test to establish that an individual qualifies as an independent contractor. If an employer cannot satisfy any of the three factors, the individual may be determined to be an employee.

In the California Supreme Court decision the Court stated:

“[W]e conclude 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, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) 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; (B) that the worker performs work that is outside the usual course of the hiring entity's business; and (C) 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.”

If you are using independent contractors in your business, we urge you to consult with our office to determine whether those workers are properly classified, have us review your independent contractor agreements for compliance.  If you are being classified as an independent contractor, rather than an employee, we are also here to advise you on your rights.

Unless it is clear and unambiguous that a provider of services qualifies as an independent contractor, it is better to be safe than sorry. Treat the provider as an employee. Making the wrong call can be expensive – back payroll taxes, fines, penalties, interest, and defending wage and hour claims.

Please contact us with any questions or comments.

Steven Lee, David Baumwohl and Douglas Bordner