California Governor Signs Law Limiting Use of Independent Contractors
California Governor Gavin Newsome has signed into law A.B. 5, a bill that codifies the state Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903.
The court adopted a very broad three-part test for when a worker may be classified as an independent contractor so the company may avoid the State Wage and Hour laws, including tax withholdings, other benefits, and requirements to pay minimum wage and provide meal and rest breaks, etc. The court concluded “that unless the hiring entity establishes:
- that 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,
- that the worker performs work that is outside the usual course of the hiring entity’s business, and
- that the worker is customarily engaged in an independently established trade, occupation, or business,
then the worker should be considered an employee and the hiring business an employer under the suffer or permit to work standard in wage orders. The hiring entity’s failure to prove any one of these three prerequisites will be sufficient to establish that the worker is an included employee, rather than an excluded independent contractor, for purposes of the wage order.”
For for-hire trucking companies, the second provision is particularly troublesome. Independent contractor drivers are always performing work that is within the usual course of the hiring entity’s business, i.e., trucking, so the decision seems to bar any trucking company from claiming that its drivers are independent owner-operator contractors. After enactment of A.B. 5, that three-part test is now codified in California statute.
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