9th Circuit Asks California High Court When Independent-Contractor Test Applies

9th Circuit Asks California High Court When Independent-Contractor Test Applies

Does California's stringent independent-contractor test apply retroactively, or only to new misclassification claims? The 9th U.S. Circuit Court of Appeals withdrew its recent decision on the matter and asked the California Supreme Court to weigh in.

Misclassification claims are a frequent source of litigation because employees are entitled to a minimum wage, overtime pay and other benefits that independent contractors don't get.

The California Supreme Court adopted a strict employee-friendly independent contractor standard in 2018, and earlier this year, the 9th Circuit held that the test applies retroactively

Many business groups were unhappy with the decision. Making the test retroactive may subject employers to liability for misclassifying workers as independent contractors even before the test was made law, said Jeffrey Horton Thomas, an attorney with Akerman in Los Angeles, at the time of the decision.

In a July 22 order, however, the appeals court granted the employer's petition for a rehearing and said it would send the question about retroactivity to the state high court to decide.

Here are SHRM Online resources and news articles on this topic.

New Standard for California Wage Orders

In April 2018, the California Supreme Court adopted the so-called ABC test for state wage-order claims in Dynamex Operations West v. Superior Court. Under the new analysis, all three of the following factors must be met for a worker to be properly classified as an independent contractor:

  • A: The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  • B: The worker performs tasks that are outside of 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.

The prior test was a more flexible multifactor analysis that primarily focused on who exerted control over the work. Employers should note that the ABC test applies only to wage-order claims in California, and different tests may apply under other state laws.

(SHRM Online)

New Test Impacts Gig Economy

Even if the test only applies after the Dynamex ruling, California employers will need to review their current business relationships to ensure everyone is properly classified as either an employee or an independent contractor. Employers in the gig economy need to be particularly careful—as the new test could challenge their business models, which often rely heavily on contractors' work.

(SHRM Online)

Lawmakers Are Considering a Bill to Codify Test

Business groups and worker advocates are closely watching a California bill, AB 5, that would codify the Dynamex decision and clarify how it would apply to jobs in the state. Although the bill would exempt certain occupations—such as doctors, investment advisors and some direct sellers—gig-economy workers aren't included in the exemptions. The business community is trying to change that, but the bill's sponsor, Assemblywoman Lorena Gonzalez, D-San Diego, doesn't want to exclude such workers from the bill's coverage.

(SHRM Online)

Labor Department Takes Different Approach

The U.S. Department of Labor issued an employer-friendly opinion letter in May, stating that some gig-economy workers can be properly classified as independent contractors under federal law. But many employment laws are state-based, so California businesses must follow state standards that apply to their workforce.

(SHRM Online)



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