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Cal. Supreme Court Tightens Independent Contractor Status

Upshot: Supreme Court Changes "Independent Contractor vs. Employee" Lega!courthouse.jpgl Definition.


Some park owners and management companies -despite admonitions- have identified certain employees as independent contractors. Legally, the central distinction had been whether the owner controlled the manner in which the employee performed the work. If the manager could choose when to work, sit in the office, take a break, what maintenance work to do, how to collect rents and decide rent increases, one might be able to claim independent contractor status. Many believe that managers are not independent contractors and that property supervisors over managers are.

Whether or not such actions can be defended in the individual case, a new test announced by the California Supreme Court may compel new evaluation of such conclusions. Dynamex Operations West, Inc., Petitioner, v. Superior Court, S222732.

Instead of previous multi-pronged tests and issues, now, the employer must meet a three-prong test to establish independent contractor status. The Dynamex ruling is the first in which a California court has established an "ABC" test to detemine whether a worker falls under thedefinition of an employee or an independent contractor. In accordance with the decision, anemployer must show that:

A) the hirer has absolutely no control over when a worker performs her or his tasks;

B) the worker is performing a task that is beyond the scope of the company's usual course of business; and

C) that the worker is engaged in their own business that provides the services she or he is performing for the hirer.

The employer must prove compliance with each test. Otherwise, the employee is to receive all entitlements of an employee. In California, this may also mean past benefits, fines and penalties. This test also forecloses, most likely, a claim that a park manager can be classified as an independent contractor. If the employee is expected to be on duty at 9:00 a.m. and expected to remain available to 7 p.m. using a park-owned computer, that person will be deemed to be an employee, for employment law classification and tax purposes.

Many California workers previously thought to be independent contractors are no longer. This will require employers to reconsider and reclassify the worker and perhaps provide the pay and entitlements required of an employee. The recalcitrant may face risk of claims, including the class action form of action, from those complaining of a misclassification. Remember, too, that Dynamex only addresses the wage order definition. Different standards (which can lead to different conclusions) may apply in deciding how to classify workers for other purposes, such as workers compensation and payroll taxes.

It is suggested that owners contact their labor counsel to discuss this case if managers are currently classified as independent contractors.

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