Employment Law Bulletin | June 2018

California Supreme Court Limits Ability to Classify Workers as Independent Contractors in Claims Brought Under the Wage Orders

 

On April 30, 2018, the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court, dramatically changed the landscape for companies that hire independent contractors by expanding the definition of “employ” and creating a presumption that all workers are employees in claims brought under the California Wage Orders.  The Supreme Court held that in such cases, a worker is an employee if the relationship with the hiring party falls under one of the following:  the hiring party (1) exercises control over wages, hours, or working conditions, (2) causes the worker to suffer or permits the worker to work; or (3) engages the employee, creating a common law employment relationship.  In order to limit the broad application of the second definition (to suffer or permit to work), the court adopted the “ABC” test, which requires the hiring party to prove all of the following in order to overcome the presumption that the worker is an employee and prove an independent contractor relationship:

(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;

AND

(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 for the hiring party.

If the hiring party cannot establish all three of these prerequisites, the worker is an employee covered by the following Wage Order’s protections:

  • minimum wage
  • maximum hours of work (overtime, double time, 7th consecutive days)
  • rest breaks
  • meal breaks
  • timekeeping/record keeping
  • itemized wage statements (pay stubs)
  • child labor laws
  • uniforms and equipment

In addition to complying with the Wage Orders that offer the protections (and prescribe the penalties) listed above, employers must pay Social Security, payroll, unemployment and state taxes in addition to providing worker’s compensation insurance and paid sick leave.  While it might be tempting to avoid these obligations by classifying a worker as an independent contractor, misclassification of a worker who is by the Dynamex standard an “employee” can result in serious exposure to significant wage claims, penalties and damages.

If you have workers you currently classify as independent contractors, we recommend that you review your arrangement under the ABC test to make sure your relationship is properly classified.  Please do not hesitate to contact us for assistance with this evaluation.

 

Final Pay Penalties:  Up to 30 Days of Wages Awarded, Even for Negligent Mistakes

 

In Diaz v. Grill Concepts Services, Inc., a California Court of Appeal recently held that an employer’s negligent mistake in making final pay is not a defense to final pay penalties.  The court further ruled that a judge does not have discretion to lower the penalty based on the employer’s “innocent” mistake or lack of awareness of its final pay obligations.   Given these harsh rules, employers must be well versed in the final pay rules and the potential penalties imposed for violating them.  Here’s a refresher:

 

Even employers who know the final pay rules often innocently make mistakes.  Here are a few we often see that result in final pay penalties:

 

The Diaz case reflects the important public policy in favor of timely payment of wages to employees.  If you have questions about your obligations, please contact an employment attorney at SMT.

No Se Habla Español?

SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish.  Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims.  Contact an SMT attorney today to get started.

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil [1]  | Lisa Ann Hilario [2] | Kari Brown [3]