The California Supreme Court Adopts New Misclassification Tests

» Articles » Employment & Labor Articles » Article

May 08, 2018


California Supreme Court Adopts New Misclassification Tests

California has chosen to pass a new, groundbreaking act that will make it a lot more challenging to businesses to classify employees as independent contractors. The group of workers who are primarily affected will be those in the trucking and transportation industries including those such as delivery drivers. However, the laws will also affect many other workers in other fields of work such as those who work on economy gigs1. The new laws make a company differentiate between those who it employs and those who it is an "employer" of. 

What Do These New Laws Establish?:

These new laws follow what is being called the "ABC Test" which means that the employee must be under company Wage Orders unless they meet all of the following criteria, in which case they are exempt from that criteria. This includes the following:

Continue reading below

FREE Employment & Labor Training from Lorman

Lorman has over 35 years of professional training experience.
Join us for a special report and level up your Employment & Labor knowledge!

Employee Discipline and Termination
Presented by Crystal L. Norbeck

Learn More

 

  • These new laws state that a worker is free from the control of the entity or person who employs them both in the while they are under contract for such sorts of work.
  • The worker performs work that is out of their specific, written contract and their specific course of the entity.
  • The worker is typically engaged in independently established trade, business, and commerce outside of the same work that is traditionally performed at their main, hired entity.

This new law expands the definition of what an "employee" is under the standards of California Law and allows more workers to be protected under the law than ever were protected under these laws before. The businesses who are hiring these workers also will be more accountable for paying them a fair wage for the work they do.

Expanding these laws will ensure that more employees than ever are covered under the state's Fair Labor laws. It will also hold businesses accountable for paying more of their employee's fair wages for the work they perform than ever before. It does that by reclassifying what an "employee" is and who an "employer" is identified as also. 

The 3 Prongs of The New "ABC" Standard Laws:

The 3 aforementioned prongs of this law each hold necessary weight in improving the California Laws and the standards that businesses are held to when paying their employees. The following explains each of those 3 prongs in depth and how this impacts employees working in California today:

 

  • Prong #1: Free From Control & Direction: The California laws have determined that any worker who is subject to any level of being under contract or control by their employer is considered an employee of that specific company. The company does not have to control the precise manner in which the employee works in order for the employee to be subject to some sort of contract or control by that company. Therefore, this expands the role of employers and the definitions of who an employee of a company is. This ultimately means that the company must be responsible to pay them what California considers a "fair wage" for the work that they do.
  • Prong #2: "Outside Usual Course of Business": This prong determines if the worker can be viewed as someone who is providing services to a company that is comparable to that of an average or regular company employee. It compares their roles to determine if the person completes enough regular, daily tasks to be determined an "employee" of that specific company. If the person completes more tasks that are considered to be tasks of an average employee rather than an independent contractor, they will be required to be paid a fair rate from the company they work for according to the California Labor Standards that ensure all employees make a fair wage. 
  • Prong #3: Customarily Engaged In Independent Trade: The third and final prong of the new laws set forth by the California Supreme Court seeks to determine if the employee is typically engaged in independent trade. Employees that do more work for a company than they do as an independent contractor in their trade are required to be paid a fair wage by their company for the services they provide or work they do. Those employees who are just listed as an "independent contractor" are more likely to be found to be an employee of the company and therefore subject to the new regulations that the California Supreme Court set forth.

 

This new 3-Pronged "ABC" law will determine that more workers are indeed employees of a specific company and therefore will broaden the number of people who are required to get an "employee" classification from their company. This will require the company to extend all of the rights and compensation to these employees that are required to be extended to all employees under the already-existing California Labor Laws. 

In The End, California's Supreme Court Reidentified Independent Contractor:

What the entire ruling by the California Supreme Court essentially did is redefine what an "independent contractor" is and who qualifies as one versus who is am "employee" of a company. Thanks to the California Supreme Court's reclassification of an employee, more workers than ever will now be considered an "employee" of a company rather than an independent contractor. Being an "employee" will help that workers are covered by California's Fair Labor Laws and will subject companies to having to pay these employees fair wages for the work that they do.

This ultimately means that employers will no longer be able to dodge minimum wage laws claiming that certain employees are not part of their workforce. This will force companies in California to pay more workers fair, livable wages than ever before. This is a landmark action as California continues to take more and more steps to protect workers and ensure that they get the compensation they deserve for the work they perform.

It's too early to determine if California will be the only state to pass such laws, however, these laws are groundbreaking and only time will tell if more states continue to follow suit in the future as more workers demand more rights and fair pay in their workplace. 

For more information on the new, groundbreaking laws that the California Supreme Court is passing to help ensure more workers have their rights, please feel free to contact us

1. http://money.cnn.com/2018/05/01/news/economy/california-gig-employer-ruling/index.html


The material appearing in this web site is for informational purposes only and is not legal advice. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. The information provided herein is intended only as general information which may or may not reflect the most current developments. Although these materials may be prepared by professionals, they should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

The opinions or viewpoints expressed herein do not necessarily reflect those of Lorman Education Services. All materials and content were prepared by persons and/or entities other than Lorman Education Services, and said other persons and/or entities are solely responsible for their content.

Any links to other web sites are not intended to be referrals or endorsements of these sites. The links provided are maintained by the respective organizations, and they are solely responsible for the content of their own sites.