California Adopts Strict Independent Contractor Test

Q.  What is the standard for whether an individual is an independent contractor under California law?

A.  On September 11, the California Assembly passed AB 5, a bill that codifies and expands the application of the strict independent contractor test (the “ABC test”) set forth in last year’s decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal.5th 903 (2018). If Governor Newsom signs the bill, as expected, it will go into effect on January 1, 2020.

AB 5 creates a presumption that workers are employees unless the “hiring entity” can meet the ABC test by demonstrating that each of the following three conditions is satisfied:

(A) The person 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.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

For more information, click here.

Susan K. Lessack

Two Federal Agencies Make it Easier to Establish Independent Contractor Status

Q.  What is the standard for determining whether a worker is an independent contractor for purposes of federal wage and hour laws and union organizing conduct?

A.  Recently, both the U.S. Department of Labor (DOL) and the National Labor Relations Board (NLRB) issued documents supporting independent contractor status, evidencing the more pro-employer stance of the Trump administration as compared to the Obama administration. Although those documents — an opinion letter from the DOL and an advice memorandum from the NLRB’s Office of General Counsel — apply only to misclassification claims under the Fair Labor Standards Act (FLSA) and the National Labor Relations Act (NLRA), respectively, they provide helpful guidance to companies on structuring their independent contractor relationships to minimize the risk of a misclassification claim. Companies should be mindful, however, that other laws — such as state wage and hour, unemployment compensation and workers’ compensation statutes — may impose higher burdens for proving that individuals are independent contractors.

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Susan K. Lessack and Tracey E. Diamond

Another Reset of NLRB’s Independent Contractor Test

Q.  What is the current standard for determining whether an individual is an employee or independent contractor for purposes of the NLRA?

A.   On Jan. 25, 2019, the Republican-led National Labor Relations Board affirmed the acting regional director’s decision that drivers of a shared airport ride service were independent contractors, not employees, and therefore not covered by the National Labor Relations Act.

The decision, which reverts back to the common law test for determining independent contractor status, will have a wide-ranging impact on other gig economy companies.

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-Tracey E. Diamond and Susan K. Lessack

California Adopts Stricter Test for Independent Contractor Status

Q.  What is the standard for determining if an individual is an employee or an independent contractor in California?

A.  On April 30, the California Supreme Court adopted a new and more onerous test (the ABC test) for determining whether individuals are employees or independent contractors. In its decision in Dynamex Operations West, Inc. v. Los Angeles County Superior Court, 2018 Cal. LEXIS 3152 (Cal. 2018), the court abandoned the test that it had applied since 1989 from S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989). Although the Dynamex case arose from claims under California wage orders — which govern, among other things, the duty to pay the minimum wage and to compensate for overtime hours worked — the decision has broader implications.

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-Susan K. Lessack

UberBLACK Drivers Are Properly Classified as Independent Contractors

Q.  Have there been any new legal developments on whether gig economy workers can be classified as independent contractors?

A.  On April 11, Judge Michael Baylson of the U.S. District Court for the Eastern District of Pennsylvania became the first judge to grant summary judgment on the issue of whether UberBLACK drivers are employees or independent contractors under the Fair Labor Standards Act (FLSA). Judge Baylson concluded that Uber correctly classified the plaintiffs — drivers who provided “black car” limousine services for Uber — as independent contractors. Razak v. Uber Techs., Inc., No. 16-573 (E.D. Pa. 2018). The plaintiffs intend to appeal. Although the analysis of independent contractor classification is fact-intensive and varies depending on the type of claim asserted by the plaintiffs, gig economy employers will find the Razak opinion helpful in structuring their independent contractor relationships.

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Susan K. Lessack