An independent contractor is an individual who does work for another individual or company but is not an employee of the firm that is paying them. These individuals need to abide by a series of laws and regulations in their business transaction—following both federal and state-level directives.
Most states have regulations about the status of independent contractors. States have fines and penalties for not correctly classifying a worker for state employment and wage status. More states are tightening up the requirements to make it more difficult to call a worker an independent contractor.
Last year, the California Supreme Court issued a landmark decision in the matter of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. On September 18, 2019, Gavin Newsom, the Governor of California, signed into law the California Supreme Court’s decision in Dynamex v. the Los Angeles Superior Court regarding the test to determine whether an employee is an independent contractor.
California joined Massachusetts and New Jersey in establishing the “ABC” test as the relevant standard for distinguishing between employees and independent contractors for purposes of applying California wage and hour laws.
The ABC test requires three tests to be met:
- The worker must be free from control and direction of the hiring entity.
- The worker must be performing work that is outside the scope of the employer’s business
- The worker must be “customarily employed” in the same type of work as that being performed for the hiring entity.
The adoption of the ABC test by the three states has significantly narrowed the category of workers who can be treated as independent contractors. It is the (B) prong of the ABC test that in many instances, is problematic; it favors a worker-friendly standard that may upend the existing independent contractor labor market.
While this has been the law in California for over a year, the codified version expands the reach to non-wage order claims and holds harsher penalties.
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