In a ruling that could change the workplace status of people across the state, the California Supreme Court made it harder Monday for employers to classify their workers as independent contractors.
The unanimous decision has implications for the growing gig economy, such as Uber, Lyft and other app-driven services — but it could extend to nearly every employment sector.
In recent years, the hiring of workers as independent contractors — not subject to government rules on minimum wage, overtime and rest breaks — has exploded. A 2016 study by economists at Harvard and Princeton universities estimated 12.5 million people were considered independent contractors, or 8.4% of the U.S. workforce.
The ruling is likely to lead many employers in California to immediately question whether they should reclassify independent contractors rather than face stiff fines for misclassification, employment lawyers said.
“A huge number of businesses will be calling their lawyers saying ‘What should I do?'” said Michael Chasalow, a professor at the USC Gould School of Law.
To classify someone as an independent contractor, the court said, businesses must show that the worker is free from the control and direction of the employer; performs work that is outside the hirer’s core business; and customarily engages in “an independently established trade, occupation or business.”
“When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor … there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification,” Chief Justice Tani Cantil-Sakauye wrote for the court.
A worker 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 said.
Instead, an independent contractor would be understood to be working “in his or her own independent business,” Cantil-Sakauye wrote.
The court offered examples: 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.
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