Have you heard about recent changes regarding independent contractor and employee misclassification in California? Game changer, or status quo for California employers with independent contractors?
A decision rendered by the California Supreme Court in the case of Dynamex Operations West, Inc. v. Superior Court (often referred to simply as “Dynamex”) has substantially changed California law regarding the status of workers, employees and independent contractors.
What Are the Specific Recent Changes Regarding Independent Contractor Misclassification?
What are the specific recent changes regarding independent contractor misclassification as a result of this landmark case? The primary impact of Dynamex is the establishment of a new legal precedent in California that all workers are considered to be and must be classified as employees. If a California business wishes to classify any worker as an independent contractor (or anything other than “employee) the provider of work must prove they meet all of the conditions established by a new “A-B-C” test:
- “that the worker is free from control and direction over performance of the work both under the contract and in fact.” and
- “that the work provided is outside the usual course of the business for which the work is performed,” and
- “that the worker is customarily engaged in an independently established trade, occupation or business.”
This makes it virtually impossible to classify any worker as an independent contractor if their work has anything to do with your company’s central business. If an independent contractor has anything to do with the design, manufacture or assembly of your products, provision of services, delivery, or any work associated with your company’s “usual course of business” they must now be classified as an employee.
What Does the New Law Regarding Classification of Workers as Employees Mean for San Diego Employers?
The Watkins Firm fully understands the impact of Dynamex and recent changes regarding independent contractor misclassification is very bad news for many San Diego and Southern California businesses. We know it may seem difficult or impossible to accept and implement. You should be aware of the significant and potentially business threatening consequences associated with ignoring the impact of Dynamex upon independent contractor misclassification. The fines for the misclassification of an employee start at $5,000 per worker but quickly accelerate to $25,000 per worker. That’s just for openers.
Once a determination has been made that a worker has been misclassified the IRS, FTB and EDD will pursue all back payroll-related taxes and work related benefits including federal and state payroll taxes, FICA, unemployment and workers’ compensation for a look-back period of four years.
In addition, the former independent contractor (now “employee”) will seek reparations for any benefits or compensation they would have received as an employee such as unpaid overtime, healthcare reimbursement, retirement contributions, sick leave and vacation not to mention comparable pay rates for time worked. It doesn’t take long for a six figure settlement to develop for each misclassified worker.
Contact San Diego Employer Defense Attorneys with More than 40 Years of Experience
The Watkins Firm has more than 40 years of experience providing advice, legal services and defense for Southern California and San Diego employers. We invite you to review our Podcast Episode 28 – Common Employer Disputes and Defenses, the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
Learn more about recent changes regarding independent contractor misclassification and new California laws governing all workers in our state. Ask about the genuine risks you face and how the EDD, FTB, Labor Commissioner, EEOC, and even the IRS are working together to come after San Diego and California employers with 1099 workers and how the Watkins Firm can help you to come into compliance while reducing legal and financial exposure(s).
