California’s Supreme Court Rules on Independent Contractor Classification

On Monday, the California Supreme Court issued its decision in the closely-watched wage and hour case, Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The Court rejected Dynamex’s arguments seeking to overturn a decision certifying a class of delivery drivers as employees. The Court adopted the state Industrial Welfare Commission’s definition of employment, which makes anyone whom a business “engage[s], suffer[s] or permit[s]” to work as an employee, and eschewed the use of a multifactor test based on the 1989 California Supreme Court decision, S. G. Borello & Sons Inc. v. Department of Industrial Relations, which emphasized an employer’s control over workers claiming employee status and considered several secondary factors in analyzing a worker’s classification.

In applying the so-called “ABC standard,” the Court held that all workers are employees unless a business can show the worker is free from its supervision, performs work that is outside the usual course or place of business, and works “in an independently established trade, occupation, or business of the same nature” as the work they do for the entity that is hiring them.

Further, the Court found: “[t]he hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish the worker is an included employee, rather than an excluded independent contractor, for purposes of the wage order.”

What does this mean for employers?
The clear import of the Dynamex decision is that employers bear the burden of establishing that a worker is an independent contractor. Employers are faced with a presumption that a worker will be classified as an employee for the purposes of wage and hour protection unless they can establish each of the three requirements and affirmatively demonstrate independent contractor status. As such, an employer’s ability to demonstrate a worker’s exemption from California’s wage and hour laws has become much more burdensome. Entities doing business in California that classify workers as independent contractors should consider reviewing their relationship under the “ABC standard” to determine whether any such workers should be reclassified.