“Close Only Counts in Horseshoes and Hand Grenades.”

                            –Baseball great Frank Robinson

What Has Changed?

With the stroke of its pen, the California Supreme Court has apparently added “independent contractors” to this exclusive list.

On April 30, 2018, the Supreme Court issued a ruling that significantly alters what it takes for a worker to be properly classified as an independent contractor under California law.  For employers who utilize the services of independent contractors, the significance of this development cannot be overemphasized.  In essence, it means that thousands of workers previously treated as independent contractors have been converted to employees, overnight, by virtue of the Court’s decision.

The practical effect of this is profound.    It means that workers can now make monetary claims based on California’s Industrial Welfare Commission Wage Orders, by alleging that they were not paid wages in accordance with California’s minimum wage and overtime compensation laws, that their employers have failed to keep legally-mandated time records or have neglected to provide mandatory itemized wage statements, for example.  Because such violations of law, if they occur, are typically not limited to individual employees, each of these examples is a candidate for a class action or representative action lawsuit.  Representative actions, like class actions, are brought on behalf of all similarly-situated employees, which can include the entire non-exempt workforce in extreme cases.

Obviously, such extreme legal remedies were previously inapplicable to workers properly-classified as independent contractors.  The examples cited represent only some of the grave potential implications of misclassifying workers as independent contractors.

What’s the Difference?

Contrary to the mistaken impression of many employers, establishing the independent contractor status of a worker is not a matter of how the involved parties describe the nature of the relationship.  Even a written contract, signed by the worker, which clearly states the parties’ intent that the relationship is one of independent contractor, will have little if any influence over how a court or administrative agency ultimately characterizes the relationship.  Instead, the nature of the parties’ business relationship will be examined.  Historically, this examination emphasized which of the parties retained the authority to determine the “manner and means” by which the contemplated work forming the basis of the engagement would be performed, even if the authority was never exercised.

For example, if the owner of a residential dwelling engaged a painter to prepare and re-paint the structure, whether the relationship was one of independent contractor or employment would depend on whether the property owner retained the authority to determine whether the painter used sanders or wire brushes, what days work would be performed, whether other painters would assist with the work, hours that work would be performed, whether the paint would be applied with brushes, rollers or sprayers, how the preparatory work was done and similar considerations.

The New Rule

The Court’s new rule provides that a worker will be deemed an independent contractor only if the hiring entity can prove all three of the following elements:

1. the worker 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;

2. the worker performs work that is outside the usual course of the hiring entity’s business; and

3. the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

In light of this new rule, it is recommended that all independent contractor relationships be reviewed for legal compliance.   If this assessment indicates that present independent contractor relationships are enforceable, the author recommends that written agreements be prepared that will enable the hiring entity to prove each of the three elements in the event the nature of the relationship comes under legal challenge.

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Jay G. Putnam is a Petaluma labor lawyer who has specialized in representing California employers for over three decades. His practice is devoted to preventing lawsuits against his clients, without sacrificing workplace authority or management prerogatives. 

While no one can guarantee a future free of lawsuits, Putnam has compiled a remarkable record of success: Not one employer-client has been sued in 36 years with his system of precautions in place. 

For those clients who have arrived with pending lawsuits, Putnam has established an excellent track record of success as well. 

You are invited to visit Mr. Putnam’s website, where you will find in-depth discussion of the most common mistakes made by California employers, and how to avoid them. http://www.jaygputnam.com/newsletter/