Law Review: Difference between an employee and an independent contractor?
Employers need to know the difference between a traditional employee and an independent contractor. Employees have deductions taken from their wages for unemployment, workers compensation and the like; while independent contractors do not. Independent contractors are “1099’d” – no withholdings. An independent contractor receives more compensation in the sense he/she does not have withholdings taken out of each payment. On the other hand, there are significant benefits to being a true employee. There are significant penalties for improperly classifying someone hired.
The criteria for determining whether a worker is an employee or an independent contractor was decided in 2018 in Dynamex Operations West, Inc. v. Superior Court. I do not mind saying I believe the Dynamex decision changed the criteria. The California Supreme Court determined otherwise.
If you are an employer, it is imperative you understand the ABC test.
A worker can properly be found to be an independent contractor “only if the employer establishes that the worker: (a) is free from the control and direction of the hiring entity (employer) in connection with performance of the work, both under the contract for the performance of the work and in fact; (b) performs work that is outside the usual course of the hiring entity’s business; and (c) is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
As noted, I believe the ABC test changed the way many workers were considered as independent contractors – the ABC test changed and narrowed the criteria to be classified as an independent contractor.
CODE DEFINITIONS OF INDEPENDENT CONTRACTOR
In response to the Dynamex case, the California Legislature passed laws clarifying (sometimes) who is an employee and who is an independent contractor. [See Labor Code sections 2750 et seq. and 2775 et seq.]. California’s law expressly lists which workers can be independent contractors.
As an employer you need to be familiar with those laws.
IS DYNAMEX AND THE ABC TEST RETROACTIVE?
The sole question in the case we are discussing today, Vasquez v. Jan-Pro Franchising International, Inc., is whether the 2018 Dynamex case is applied retroactive or is it effective only from when Dynamex was decided in 2018?
Again, I would have ruled, as a change in law, it should be applied from the date of the decision moving forward in time, not before 2018. That is why I am not on the California Supreme Court. That is one reason anyway.
Chief Justice Cantil-Sakauye authored the Opinion of the California Supreme Court putting that question to bed: “We conclude that our decision in Dynamex applies retroactively to all non-final cases that predate the effective date of the Dynamex decision.”
Part of the rationale for the Court’s decision is that it encourages workers to be treated as employees. The Court wrote, “the wage order’s protections benefit workers by enabling them to provide at least minimally for themselves and their families and to accord them a modicum of dignity and self-respect. …if the wage orders’ obligations are not fulfilled, the public will often be left to assume responsibility for the ill effects to workers and their families resulting from substandard wages or unhealthy and unsafe working conditions.”
EFFECT OF SUPREME COURT DECISION
The effect of the California Supreme Court’s decision in Vasquez is that employers who have misclassified workers as independent contractors face legal exposure from those employees and potential fines and penalties by the Great State. This is no small matter.
If you are interested in reading more about Dynamex and the ABC test, go to http://www.portersimon.com where you will find several blogs on this timely topic.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOAs, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at firstname.lastname@example.org or http://www.portersimon.com.
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