Employment classification takes left turn in California
Employment classification takes left turn in California
24 JULY 2018 7:09 AM

What makes an employee different from an independent contractor? California’s Supreme Court just introduced a new definition that will reset contract negotiations.

Big news recently came out of the California Supreme Court that impacts every hospitality employer in the Golden State.

At the very least, the decision in Dynamex Operations West Inc. v. Superior Court of Los Angeles County is something that should grab the attention of hoteliers with California properties. And that’s because for the first time in nearly three decades, the standard to classify an individual as an employee or independent contractor has been altered.

Since 1989, courts have adopted a multifactor test to determine an individual’s employment status. In particular, an employer’s control over a worker claiming to be an employee was the critical consideration by the courts making an employee/independent contractor classification; that, along with several secondary factors: whether the work undertaken was a part of the regular business of the principal or alleged employer; whether the principal or the worker supplied the instrumentalities, tools and the place for the person doing the work; the alleged employee's investment in the equipment or materials required by his or her task; and whether the service rendered required a special skill.

Not any longer, as control has taken a back seat to a three-pronged “ABC test.”

With its decision in Dynamex—in which a delivery company challenged a decision decertifying a class of delivery drivers in a wage and hour case—the court now leans into a presumption that workers are employees. It has done so by adopting a standard (the ABC test) that labels a worker as an employee unless a business can show (1) the worker is free from its supervision, (2) performs work that is outside the hirer’s core business, and (3) customarily engages in “an independently established trade, occupation or business.” The court expressly ruled that “the hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an … employee, rather than an … independent contractor.”

Without question, this approach to employment classification is much more liberal than what had been the norm for 29 years. Now, an individual 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 provided the following example in its ruling:

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.

-Opinion, Dynamex Operations West Inc. v. Superior Court
of Los Angeles County

In the wake of Dynamex, the burden is now squarely on the hiring entity—hotels and resorts—to establish that a worker is an independent contractor, and that burden appears to be a hefty one. No doubt more employers will have to consider (or reconsider) whether their arrangements with certain workers support independent-contractor classification, a reality that will be felt across industries and is sure to “shake the halls” of the gig economy, like Uber and Lyft.

Of course, the difficulty lies in making the necessary classification modifications and minimizing exposure. Despite the new standard’s presumption of employee status, it remains to be seen—likely through subsequent judicial and labor commissioner interpretation—just how different in practice the ABC test will be from the long-standing, and familiar, standard based primarily on control. Whatever the case may be, hoteliers are encouraged to revisit their practices and take steps to best position themselves to withstand challenges to their contractor relationships.

Dana A. Kravetz, the managing partner of Michelman & Robinson, LLP (M&R) and leader of the firm's Hospitality Group, focuses his practice on counseling and litigating on behalf of hotel and resort management. He routinely defends his clients in various employment-related matters, including discrimination, sexual harassment prevention, wrongful termination, reduction in workforce, hiring practices, and wage and hour issues, including class action litigation. Mr. Kravetz can be contacted at 310-299-5500 or dkravetz@mrllp.com. Please visit http://www.mrllp.com/professionals-Dana-Kravetz.html for more information.

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