The California Supreme Court Makes It More Difficult to Classify Workers as Independent Contractors – Assumes all Workers are Employees

On April 30, 2018, the California Supreme Court applied an expansive definition of independent contractor in a ruling that is sure to have a dramatic impact on many California businesses, and the burgeoning gig economy in particular.

In the case of Dynamex Operations W. v. Superior L.A. County, a class action was brought on behalf of a group of delivery drivers who were classified as independent contractors by delivery company, Dynamex. Dynamex argued that the drivers were properly designated as independent contracts under the totality-of-the-circumstances standard set forth in the Borello case—utilized by California businesses since 1989—which concentrated primarily on the degree of control the employer exercised over the worker. Dynamex’s drivers provided their own vehicles, paid their own transportation expenses (fuel, tolls, vehicle maintenance, and insurance), set their own schedules, and were generally free to choose the sequence in which they made deliveries and the routes they would take. They were also allowed to simultaneously work for other delivery companies.

The Supreme Court sided with the drivers, concluding that a worker is presumed to be an employee unless the company can establish that each of three factors exist under the “ABC” test: (A) that the worker is sufficiently free from the control and direction of the company; and (B) that the worker performs work that is outside the usual course of the company’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The Court said it wasn’t enough that Dynamex didn’t prevent the drivers from engaging in other work; it had to prove that the drivers actually performed delivery services for other companies. In addition, Dynamex was a “delivery company,” so its delivery drivers were performing the essential functions of the business. They were not comparable in that regard to an electrician or plumber who might do business with Dynamex as independent contractors.

This ruling, with its newly drawn legal parameters, is expected to significantly affect California’s freelance industry and gig economy. Business offering web-based food delivery services, courier and ridesharing services that are based on independent contractor workforces will likely be the most impacted. But this landmark ruling warrants an analysis across the board of many positions that were previously classified as independent contractors.