e-Alert – New Worker Classification Standard Adopted in California

Background

California has adopted a new law that changes the process for determining whether a worker should be classified as an employee or independent contractor. The new law adopts the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.

Summary

What is this new law?
The new standard for worker classification dictates that a worker is an employee if he or she provides labor or services for remuneration. The new law also shifts responsibility to employers to prove that independent contractors are classified correctly. Finally, the law prohibits employers from reclassifying individuals who were employees on January 1, 2019, as independent contractors.
The new standard, called the “ABC test,” is scheduled to become effective January 1, 2020. It defines an employee as an individual who provides labor or services for compensation. In order to classify an individual as an independent contractor, it is an employer’s responsibility to prove that the employee meets all three of the following conditions:

A. The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract and for the performance of the work.
B. The worker performs work that is outside the usual course of the hiring entity’s business.
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

This new standard introduces two new factors that were never before part of California’s independent contractor analysis: parts B and C.

Who is Exempt?
There is a list of workers that are exempt from the Worker Classification Standard:

• AAA-affiliated tow truck drivers.
• Builders and contractors;
• Commercial fishermen (until 2023);
• Direct sales (if compensation is based on actual sales and not wholesale purchases or referrals);
• Doctors, physicians, surgeons, dentists, podiatrists, veterinarians, and psychologists;
• Financial services (accountants, securities broker-dealers, investment advisors);
• Freelance writers and photographers (if they contribute no more than 35 submissions to an outlet in a year);
• Hair stylists and barbers (if licensed and can set their own rates and schedule);
• Insurance brokers;
• Licensed estheticians, electrologists;
• Licensed manicurists (until 2021);
• Professional services (marketing, human resources administrators, travel agents, graphic designers, grant writers, fine artists);
• Professionals (lawyers, architects, engineers);
• Real estate agents; and
• Tutors (who teach their own curriculum, and who are not public-school tutors)

Next Steps for Employers

• Misclassification of workers can result in significant costs and wage and hour liability, as well as expenses for employee benefits, unemployment insurance, and workers’ compensation. Now is the time to review independent contractor agreements and relationships and consider reclassification if necessary.
• Review any current independent contractor agreements and any related hiring procedures and policies.
• If you are a Full-Service or Virtual HR client and would like our assistance reviewing your current classification of employees in California, please email us.

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This content is provided with the understanding that HR Knowledge is not rendering legal advice. While every effort is made to provide current information, the law changes regularly and laws may vary depending on the state or municipality. The material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable laws in your jurisdiction and consult experienced counsel for legal advice. If you have any questions regarding this content, please contact HR Knowledge at 508.339.1300 or email us.