The California Supreme Court set more stringent standards for determining whether workers can be classified as independent contractors, handing a victory to worker advocates and dealing a setback to gig economy companies and platforms.
The ruling on Monday came in a case originally filed in Los Angeles County Superior Court by a worker, Charles Lee, claiming that the West Coast operations of Dallas delivery company Dynamex Inc. improperly classified him as an independent contractor.
As the case worked its way up to the state Supreme Court, it drew attention from worker advocates and employer groups around the thorny issue of when a worker can be classified as an independent contractor and when the worker must be classified as an employee subject to wage and hour laws and entitled to benefits such as workers’ compensation. This has been a key battleground as gig economy platforms such as San Francisco-based Uber Technologies Inc. have grown rapidly over the last decade.
Up until now, the basic test for determining whether a worker can be classified as an independent contractor has focused primarily on the degree of control that the company has over workers setting their own schedules and some working conditions.
The high court ruled April 30 that an employer must establish three facts before a worker can be classified as an independent contractor:
• “(A) That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
• (B)That the worker performs work that is outside the usual course of the hiring entity’s business; and
• (C) That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.”
The court said in setting this more stringent set of standards that “wage and hour statutes and wage orders were adopted in recognition of the fact that individual workers generally possess less bargaining power than a hiring business and that workers’ fundamental need to earn income for their families’ survival may lead them to accept work for substandard wages or working conditions.”