The California Supreme Court made it more difficult Monday for employers to classify their workers as independent contractors.
The unanimous decision has implications for the growing gig economy, such as Uber, but it could extend to nearly every employment sector.
The ruling came in a class-action lawsuit against Dynamex Operations West Inc. a package and document delivery company. The suit charged that Dynamex misclassified its delivery drivers as independent contractors rather than employees.
The hiring of workers as independent contractors — not subject to government rules on minimum wage, overtime and rest breaks — has exploded. A 2016 study by economists at Harvard and Princeton universities estimated 12.5 million people were considered independent contractors, or 8.4% of the U.S. workforce.
The ruling is likely to lead many employers in California to immediately question whether they should reclassify independent contractors rather than face stiff fines for misclassification, employment lawyers said.
To classify someone as an independent contractor, businesses must show that the worker is free from the control and direction of the employer; performs work that is outside the hirer’s core business; and customarily engages in “an independently established trade, occupation or business.”
“When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor … there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification,” Chief Justice Tani Cantil-Sakauye wrote for the court.
A worker may be denied the status of employee “only if the worker is the type of traditional independent contractor — such as an independent plumber or electrician — who would not reasonably have been viewed as working in the hiring business,” the court said.
The court offered examples: A plumber temporarily hired by a store to repair a leak or an electrician to install a line would be an independent contractor. But a seamstress who works at home to make dresses for a clothing manufacturer from cloth and patterns supplied by the company, or a cake decorator who works on a regular basis on custom-designed cakes would be employees.
The court said wage laws were adopted to protect workers’ health and safety and enable them to earn a living. The laws also shield the public from having to assume financial responsibility for workers earning substandard wages or working in unhealthy or unsafe conditions.
Worker classification is the core issue in recent labor disputes between unions and trucking firms serving the Los Angeles and Long Beach ports.
“This is an effort to level the unequal playing field — misclassified workers have been taken advantage of for decades,” said Julie Gutman Dickinson, an attorney for the Teamsters Union’s port trucking campaign.
The California Labor Commissioner’s Office and the courts have repeatedly found that port truck drivers were misclassified.
Under the new standard, drivers for Uber and Lyft should be classified as employees because those companies’ usual course of business is providing rides, said Michael Chasalow, a professor at the USC Gould School of Law.
