Employers: Do You Have to Reclassify Your Independent Contractors in 2020?

worker-vs.-independent-contractor

The new year is fast-approaching and employers should be aware that several new labor and employment laws will become effective when the clock strikes midnight and the last of the confetti falls.  In fact, the California legislature and Governor Newsom passed several significant laws this year that will go into effect on January 1, 2020.

Among those laws are new rules making it tough – almost impossible – to employ and classify many traditionally held independent contractor positions as independent contractors.  AB 5, which becomes effective on January 1, 2020, expands and codifies the presumption that all workers are employees, and requires employers to prove otherwise through either a broader version of the strenuous 2018 California Supreme Court’s Dynamex[1] decision’s “ABC Test,” or, for a few industry specific exempt job categories, strengthens the burden of employers to prove workers are still independent contractors under the 1989 California Supreme Court decision in Borello[2] while continuing to apply other job-specific independent contractor classification standards.

Under Dynamex, a worker is presumed to be an employee unless the employer can establish that all of the following conditions are met:

  • The worker is free from the control and direction of the employer, both under the contract for the performance of work and in fact;
  • The worker performs work that is outside of the usual course of the employer’s business; and
  • The worker is engaged in an independently established trade, occupation, or business that is of the same nature as the work performed for the employer.

Under the Borello test, the degree of control exercised by the employer over the manner and means of the worker’s performance is a primary factor to determine worker status, but secondary factors including, but not limited to, equipment ownership, scheduling, independent hiring of additional workers, contracts for discrete units of work rather than an indefinite time, the worker’s performance of services for other companies, and the worker’s assumption of risk for profit and loss are also considered.

This new legislation imposes amendments to both the California Labor Code and Unemployment Insurance Code in January, and will also apply to the Workers’ Compensation Code as of July 1, 2020. It allows not only individual workers to make claims to the Labor Board, Workers’ Compensation Board, and other entities, but also the State Attorney General, city attorneys, and district attorneys to seek injunctive relief on behalf of workers. As such, failing to reclassify independent contractors as employees appropriately and in a timely fashion will expose employers to heavy penalties in every direction.

Employers should keep these new employee classification rules in mind and seek legal guidance to make sure they are in compliance with this and the many other new employment and labor laws taking effect when the 2020’s roar in next month.  Do you know that if your business is in compliance with all of the new year’s laws?  If you engage independent contractors and want guidance on complying with these new rules, or if you would like to find out about other laws becoming effective in just a couple of weeks, please call Dias Law Firm, Inc., and schedule an appointment.  We’re happy to help you bring in the new year with a bang rather than a whimper.

[1] Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903 [232 Cal.Rptr.3d 1, 416 P.3d 1].

[2] S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 [256 Cal.Rptr. 543, 769 P.2d 399].

By: Shannon N. Wallen, Esq.
IMG-3736

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