California protects working conditions for employees in the state through a broad set of laws, rules and regulations. For example, California employers must pay their employees a minimum hourly wage (now at $9.00 per hour) and, generally speaking, one-and-a-half times the minimum wage for overtime work of more than 8 hours in a day or more than 40 hours in a workweek. There are exceptions for professional, managerial or technical employees who are exempt from the minimum wage laws. Employers in California must also reimburse employees for expenses incurred in performing their job.

Not all workers are considered employees under California law, however. Some people who provide services to others are independent contractors. And figuring out who are employees and who are independent contractors is no easy task.

California’s Labor Code creates a presumption that anyone who provides a service to another is an employee. But that presumption can be overcome based on the specific details of a particular working relationship. Neither the Labor Code nor any other California statute sets forth a test to determine if someone is an employee or an independent contractor. Instead, the law has been developed through litigation, as workers brought cases to court claiming to be employees and deserving of the benefits that come along with employment. 

The key case is S.G. Borelli & Sons v. Department of Industrial Relations, a California Supreme Court decision from 1989. In that case, the Court ruled that the company has the burden to prove a worker is not an employee. To resolve that dispute, the most important factors are whether the company has the right to control both the worker and the method and means by which the worker performs the required services. Secondary factors to be considered include whether the worker performs services distinct from the employer’s main business; whether the worker requires close supervision; whether the worker invests in and supplies the necessary tools and equipment; whether the worker has the opportunity for profit; how the worker is paid; and what the expectations of each side were at the beginning of the relationship.

Note that there is a case currently pending before the California Supreme Court that may change the legal test for determining whether a worker is an employee or an independent contractor. In Dynamex Operations West v. Superior Court, the California Supreme Court will decide whether the common-law test laid out in S.G. Borelli & Sons still applies when the California’s Industrial Welfare Commission has issued a Wage Order that specifically defines who is an employee under certain circumstances.

The IWC has issued 17 Wage Orders. Twelve orders govern particular industries like manufacturing, transportation and the movie industry. The other five orders govern particular kinds of employees who do not work in one of the 12 specifically-covered industries. Dynamex Operations involves the transportation industry, which is governed by Wage Order No. 9. That order defines an employee as “a person employed by an employer” and defines employer as “any person who directly or indirectly, through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” 

You can see how that definition differs from the one described in the S.G. Borelli & Sons case. The California Supreme Court will consider these issues and will likely issue a decision sometime in 2016.

One last note. California wage and hour protections are considered more protective of employees than the Federal Labor Standards Act or FLSA. For example, the federal minimum wage is only $7.25 per hour. Nevertheless, the FLSA takes a broader view of who is an employee, as compared to independent contractors. Under the FLSA, an employer is one who “suffers or permits” another to work for him. When Congress enacted the FLSA, the “control test” discussed in S.G. Borelli & Sons had been in use by courts. Congress intended to sweep more workers into the classification of employee, and thus created the “suffer or permit” to work test.

The U.S. Department of Labor, the federal agency that administers the FLSA, uses the “economic reality” test flesh out the “suffer or permit” to work standard. Under the economic reality test several factors are considered equally, and seek to get to the question of whether the worker is economically dependent on the company. If so, the worker will be considered an employee.

If you are being treated as an independent contractor, consider whether you should be considered an employee under either California or federal law. We can help you work through those issues.