If a company classifies you as a 1099 independent contractor but you provide services that are within the usual course of the company’s business operations – it’s highly likely that you’re misclassified and owed significant damages including your unpaid overtime, meal period violations, rest break violations, unlawful wage deductions, your work-related expenses, and additional civil penalties.

California’s New “ABC” Test to Determine if You Are an Employee or Independent Contractor

In today’s “gig economy” where companies rely on using independent contractors as an integral part of their business model, a recent California Supreme Court case, Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County 4 Cal. 5th 903 (2018), has established a new three-prong “ABC” test to determine whether workers are employees or independent contractors.  Under the new “ABC” test, not only is the burden on the contracting company (“hiring entity”) to establish that the worker is an independent contractor, but the hiring entity must affirmatively establish all of the following three factors to negate a worker’s status as an employee:

(A)  The worker is free from 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 work that is outside the usual course of the hiring entity’s business; and,

(C)  The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

How the Dynamex Decision Impacts You If You’re an Independent Contractor in California

While each case depends on the nature of the work being performed and the nature of the relationship between the worker and the hiring entity, many businesses will be hard-pressed to satisfy the new “ABC” test.  Prong B will be particularly problematic for businesses because their independent contractors typically provide services and perform work within the usual course of business.   For example, couriers, delivery drivers, IT workers, pharmacists, data analysts, RNs, graphic designers, live entertainers, real estate agents, and project managers, who work on a 1099 independent contractor basis, all perform services and core functions within the usual course of their hiring entity’s business operations.

In its discussion regarding the application of Prong B, the Dynamex Court cited examples of a clothing manufacturing company who hires work-at-home seamstresses to make dresses that are sold by the company, and a bakery who hires cake decorators to work on a regular basis on its custom-designed cakes.  The Court reasoned that these types of workers are part of the hiring entity’s usual business operations and the hiring business can reasonably be viewed as having suffered or permitted the workers to provide services as employees – not 1099 independent contractors.

Courts Are Applying Dynamex Retroactively

Even though Dynamex establishes a new standard to determine whether individuals qualify as independent contractors or employees in any given situation (at least as to claims brought under the IWC wage orders such as unpaid overtime, meal and rest period violations, reporting time pay etc.) the Dynamex Court did not state that its decision applied only on a forward-going basis, or prospectively.  Rather, given the age of the claims in Dynamex, and the California Supreme Court’s longstanding acknowledgment of its authority to make such a statement re: prospective application (Newman v. Emerson Radio Corp. 48 Cal. 3d 973, 978 (1989)), the lack of such a pronouncement suggests that the decision should apply retroactively.  Moreover, the fact that the California Supreme Court later denied requests to modify its decision to state that Dynamex will only be applied prospectively supports this conclusion.  In light of the general rule that judicial decisions are given retroactive effect (Newman, supra at 978), and because it is up to the Supreme Court to declare an exception to this rule (Barr v. ADandS, Inc. 57 Cal. App. 4th 1038, 1053 (1997)), courts will apply Dynamex retroactively.  (See Johnson v. VCG-IS, LLC, et al., 30-2015-00802813-CU-CR-CXC (Orange Super. Ct., filed Aug. 5, 2015). 

What does this mean for businesses and workers improperly classified as independent contractors?  In sum, it means significant legal exposure for businesses because workers can claim damages going back as far as three to four years, depending on the applicable causes of action.

The Dynamex case means independent contractors are the exception – not the norm.  If you believe you have been incorrectly classified as a 1099 independent contractor, contact our office today at 949.260.2025.