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California Case Law: Employee vs. Independent Contractor
In California, as in many states, the distinction between an employee and an independent contractor can have significant legal and financial consequences for both parties involved. Employers typically prefer to classify workers as independent contractors, as they are not subject to certain labor laws and taxes that apply to employees. However, misclassifying workers can lead to costly disputes and penalties, as well as a loss of rights and benefits for workers. To help clarify the criteria for classification, California courts have developed a body of case law that defines and applies various tests and factors based on common law, statutes, and regulations.
The main test for determining whether a worker is an employee or an independent contractor in California is the “ABC test,” which was codified in Assembly Bill 5 (AB 5) in 2019 and became effective on January 1, 2020. The ABC test presumes that a worker is an employee unless the employer can prove all three of the following factors:
A) The worker 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 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.
This test replaces the previous multi-factor test known as the Borello test, which was based on more than a dozen factors and relied heavily on the right to control the details of the work. The ABC test, by contrast, focuses more on the nature of the work and the relationship between the worker and the hiring entity. However, there are still many questions and challenges regarding the application of the ABC test to various industries and situations, as well as the extent to which it preempts federal law and other state laws.
To illustrate some of the issues involved in employee vs. independent contractor cases, let`s look at some recent California case law:
– Dynamex Operations West, Inc. v. Superior Court (2018): This landmark case established the ABC test as the default standard for wage order claims, which cover various labor protections such as minimum wage, overtime, meal and rest breaks, and reimbursement of expenses. The court held that the Borello test was inconsistent with the purpose of the wage orders, which are intended to protect employees from exploitation. The court also clarified that the “suffer or permit to work” standard, which appears in many wage orders and statutes, means that anyone who performs work for another is presumed to be an employee unless the work falls within a recognized exception.
– Garcia v. Border Transportation Group, LLC (2021): This case involved a dispute between a group of ride-hail drivers and a transportation company that classified them as independent contractors. The court applied the ABC test and found that the drivers were employees for purposes of the wage orders, as they did not perform work outside the usual course of the company`s business. The court rejected the company`s argument that its business was merely to connect drivers with passengers, rather than to provide transportation services, and that the drivers were engaged in an independent trade or business by owning or leasing their own cars and setting their own rates. The court also rejected the company`s claim that the Federal Arbitration Act preempted the application of the ABC test, as the test was not based on the arbitration agreement itself but on the underlying wage order claim.
– California Trucking Association v. Bonta (2021): This case involved a challenge to AB 5 by the California Trucking Association, which argued that the ABC test was preempted by federal law under the Federal Aviation Administration Authorization Act (FAAAA) and the Interstate Commerce Commission Termination Act (ICCTA). The court upheld the constitutionality and validity of AB 5 and the ABC test, finding that the FAAAA and ICCTA did not preempt the application of a generally applicable labor law like AB 5 to motor carriers and owner-operators. The court also recognized that the ABC test might not be suitable for some types of trucking arrangements that involve multiple parties or leases, and invited the legislature to consider creating exemptions or alternative tests for such cases.
These cases demonstrate the complexity and importance of the employment status determination in California and the need for careful analysis of the facts and the law. Employers and workers alike should consult with experienced attorneys who are familiar with the latest developments in California case law and can provide guidance on how to comply with the applicable rules and protect their rights and interests.
