The California Supreme Court has issued a landmark decision that will make it much harder for companies to classify workers as independent contractors – and to avoid paying them wages and overtime.

In what’s being called “a game-changer,” the decision establishes a new set of rules for determining whether a worker is a contractor or an employee.

Background:

Dynamex Inc. is a package and document delivery company that operates throughout the United States and Canada. In 2004, the company changed its classifications for drivers, switching them from employees to contractors. (Recall that employees enjoy protections and benefits that contractors do not.)

In April 2005, one of the affected drivers filed a class action complaint against the company. The suit questioned the new classification, saying drivers continued to perform the same tasks and under the same supervision as when they were classified as employees. For more than a decade, the litigation progressed through lower courts, and the class grew to 300 drivers.

What Happened:

In a unanimous decision, the judges of the California Supreme Court issued a decision that sided with the Dynamex drivers – and changed the rules for classifying contractors in the state of California.

The new policy starts with the assumption that workers are employees. If a company wants to classify a worker as a contractor, it now must meet all three of these conditions:

 

• The worker must be free from the control and direction of the company in connection with the performance of the work;
• The worker must perform work that is outside the usual course of business for the company; and
• The worker must be “customarily engaged” in an independently established trade, occupation or business of the same nature as the work performed for the company.
  

The second requirement – that the worker must perform work “outside the usual course of business” – is a significant; it holds true regardless of the worker’s location or length of employment. The California Supreme Court’s decision offered some clarifying examples. If a store hires plumbers to repair a leak, those services are clearly outside the scope of its retail business. However, if a clothing manufacturer hires seamstresses to work at home to make dresses, “the hiring business can reasonably be viewed as having suffered or permitted the workers to provide services as employees.”

What It Means:

As The New York Times wrote, “The decision could eventually require companies like Uber, many of which are based in California, to follow minimum-wage and overtime laws … potentially upending their business models.

The new test applies to classifications of employees as they relate to the state’s Wage Orders, which set guidelines for minimum wage, overtime, meal and rest breaks, exempt status and working conditions. The California Supreme Court decision did not address changing employee status under other employment statutes, such as those governing taxes, unemployment or benefits.

What’s Next:

For the Dynamex drivers, this decision means they will be allowed to pursue their class action.

For the state at large, all employers – public or private – must reassess their contractor relationships, and all workers must understand their rights under these new parameters.

Some litigation already has been filed. Drivers for Lyft and Postmates have filed lawsuits claiming they were improperly classified as contractors; both point to the “usual course of business” provision. As the petition in the Lyft lawsuit aptly notesstated, “Without drivers to perform rides, Lyft would not exist.”  

If you believe your employer has misclassified your role, you may be entitled to back wages, overtime and expenses. Contact Keller Grover at 866-663-3308 for a free consultation.