Independent Contractors Narrowly Defined in CA

The California Supreme Court’s recent decision regarding independent contractors creates a succinct and more narrow definition that should spur employers to evaluate – and likely reclassify – some independent contractors as employees.

Background

The test for classifying workers as employees or independent contractors previously weighed a number of factors, without placing emphasis on any one factor or requirement.

On April 30, 2018, a landmark decision on this topic was issued by the California Supreme Court (Dynamex Operations West, Inc. v. Superior Court).  The class-action case was brought by California-based delivery drivers at Dynamex, a Texas-based business that provides package tracking and delivery.  The court decided that, because those individuals were delivery drivers and working for a delivery business, the relationship was that of employer-employee.

This decision applied a rigid test of whether a worker is an employee or independent contractor.  California employers must now apply three factors in conjunction in determining whether an individual is an employee or independent contractor.  To be legitimately an independent contractor, the “ABC” test requires all the following be true:

  1. that 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 and in fact; and
  2. that the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work he or she performed for the principal.

If an employer fails to establish any of the three factors, it will result in a determination that the worker is an employee.

The requirements imposed by factor “B” (which was previously one of several to be considered but had not been interpreted as required) means that a vast majority of individuals working at a company would be considered employees if they perform work that is in line with the customary business.  The Court gave a few examples: when a retail store hires an outside plumber to perform occasional repairs, the services of that individual are not part of the store’s usual course of business and the store would not be seen as performing the work of an employee.  Alternatively, if a bakery hires a cake decorator to work on a regular basis on custom-designed cakes, the worker is part of the business’ usual operations and would be reasonable to view this as an employer-employee relationship, even if the cake decorator is in separately also in business for him/herself.

The Court’s ruling specifically applies to claims asserted under the IWC Wage Orders, which detail the obligations employers have related to minimum wage, overtime, rest and meal breaks.  In these cases, employers bear the burden of proof in a challenge to the classification.

Significance

This decision draws a clear line between employee and independent contractor; one that employers in California will need to follow.  One would also expect that a ripple effect may occur in the “gig economy” of casual, independent workforce by making some of those “gig” relationships non-compliant, as the decision gathers more work relationships under the “employer – employee” umbrella.

California companies should immediately review their current Independent Contractors against the “ABC” test to assess whether reclassification might be in order.  Going forward, while bringing in new workers, employers will need to look carefully at any independent contractor arrangements to ensure the classification is correct under this new, stricter ruling.  Employers in other states may also wish to take note, as this decision could be a catalyst for more worker-friendly decisions in those states on this topic.

Amy Kelemen, SPHR – Director of Professional Services & Senior HR Consultant

Disclaimer: Some information contained herein has been abridged from numerous sources and may be protected by various copyright laws. Such information should not be construed as consulting or legal advice. Please contact our office for specific advice and/or referrals.

Bay Area Human Resources Services

ICE Planning an Increase in I-9 Audits During Summer 2018

ICE (Immigration and Customs Enforcement) has announced that employers should expect a surge in immigration enforcement in the workplace in 2018.  Already, ICE has opened more immigration cases in 2018 than they opened in the entire fiscal year of 2017 (Oct 1-Sept 30).  This is a significant increase in enforcement.  Additionally, the way in which penalties are calculated have changed.  ICE now adds the number of paperwork violations to the number of hiring violations as the numerator, which in some cases dramatically increases the amount of the fine.  So, while I9 audits have not traditionally been on the radar of many Human Resources departments, it has never been more critical to ensure compliance.

The following are steps you can take right now to improve your chances of a clean ICE I9 audit:

  • Correct simple errors (i.e., missing date, transcription error) – cross out the wrong information and fill in the correct information. Initial and date the correction.
  • Check for documentation errors – if there are any errors regarding an employee’s document (i.e., missing information), you will need to have the employee bring in appropriate documentation. Employees do not need to bring in the same documents that they originally used, so long as the document(s) is/are from the “List of Acceptable Documents.”
  • Conduct regular self-audits of I9 documentation – verify that all employees are accounted for, along with recent terminations.  If any are missing, have the employee fill out another form with the current date.  Do not backdate – note and initial that the old form was lost and a new one was created.
  • Missing I9 forms – If you are missing I-9 forms for terminated employees that should still be on file (less than three years after the date of hire or less than one year after termination), there is not much you can do. If you have copies of the employee’s documents, you can fix basic transcription errors. Terminated employees do not need to be contacted to correct I9 errors.

Going forward, ICE plans to conduct up to 15,000 Form I-9 audits per year.  These audits will be completed by electronically scanning documents in a not-yet-created national inspection center.  Therefore, it is more important than ever to take precaution and comply with I9/immigration regulations.

Meredith Delia – HR Consultant

Disclaimer: Some information contained herein has been abridged from numerous sources and may be protected by various copyright laws. Such information should not be construed as consulting or legal advice. Please contact our office for specific advice and/or referrals.

Bay Area Human Resources Services