Even after several very public class action settlements (think Uber) and solid advice from HR professionals, some employers still seem to think it’s an easy call and profitable business decision to classify people as “independent contractors”. The latest California Supreme Court decision, Dynamex Operations West Inc. v. Superior Court (2018), rules against a company that, in the opinion of the Court, miss-classified employees as contractors.
A valuable piece of guidance from the Court in this matter is helpful, even though the ruling isn’t exactly good news for employers. The Court declared a three-part test to determine whether a person is a contractor or employee. All three prongs of the test must be satisfied. They are:
(1) The worker must be free, in everyday tasks, from the business’s control and direction;
(2) The work performed must be outside the usual course of the business’s operations; and
(3) The worker must be customarily engaged in an independent occupation or business of the same type as the work he or she is performing for the employer.
The control issue (1) isn’t so new; however, the “work performed must be outside the usual course of the the business’s operations” test (2) is more specific. In Dyamex, the Court ruled that delivery drivers could not be considered independent contractors, that is, how can delivery drivers be seen as doing work that is outside the usual course of the business, especially when the employer’s business model predicates it’s profit margin on non-employee delivery drivers for product distribution? Test (3) reiterates that an independent contractor must indeed “quack like a duck to be a duck”, that is, have a DBA, bill clients for service, be paid through Accounts Payable, not Payroll, and have a business license and tax ID number.
Please friends, think long and hard before classifying someone as an independent contractor just to avoid payroll taxes, worker’s comp, or other perceived “benefits” of doing so!
As always, let me know if I can provide assistance when making your HR decisions.