Proper classification as an employee or independent contractor in California affects your rights, protections, and wages in California. Misclassification happens more often than you think.
The recent passing of AB5, also known as the “gig worker bill,” changed the classification of independent contractors in California.
Additionally, in November 2020, Proposition 22, or the “App-Based Drivers as Contractors and Labor Policies Initiative,” passed applying specifically to app-based drivers. Prop 22 serves to side-step AB5 specifically with respect to app-based drivers for Lyft, Uber, and others.
However, the proper classification of independent contractors vs. employees in California is complex and requires a careful review of your business relationship’s facts. The attorneys at Workplace Rights Law offer quality employment law representation to clients on the proper interpretation of AB5 and your rights.
Independent Contractor Rights
Although California independent contractor law does not provide for the same federal and state protections that employees enjoy, independent contractors are entitled to certain rights.
Right to Work
Independent contractors enjoy being their own boss. Therefore, independent contractors determine the when, how, and where of any given project. Your hiring party may decide how they want a final product or service to look; however, you determine the manner of completion.
Right to Contract
It is recommended as an independent contractor in California that you sign an independent contractor agreement with any hiring party. An independent contractor agreement protects your interests and that of the hiring party relative to the parameters of the project. For example, if you do not receive payment for completing a project, an independent contractor agreement provides you recourse under California independent contractor law.
Right to Payment
Even though you are not an employee, a California independent contractor enjoys a right to payment for their work. Although your hiring party is not subject to state and federal tax requirements regarding independent contractors, they are still entitled to payment for work completed subject to their contract terms.
Right to Correct Classification
Independent contractor rights in California include correct classification. The California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, known more commonly as the Dynamex Decision, and the passing of AB5 changed the long-standing definition of an independent contractor. Therefore, understanding whether you are an employee or independent contractor is within your independent contractor right in California.
Right to Legal Recourse
If an independent contractor agreement exists between you and a paying party, you have the rights to enforce the terms of the contract. Additionally, if you’ve been improperly classified as an independent contractor but are an employee, you may pursue missing benefits or wages under California law.
Differences Between Independent Contractors and Employees in California
The significant differences existing between independent contractors vs. employees in California pertain to the rights enjoyed by employees.
Overtime Pay and Minimum Wage
Non-exempt employees in California are entitled to overtime pay for any work at a rate 1.5 times their regular pay rate for all hours worked over 8 hours per day or 40 hours per week. Additionally, a non-exempt employee is entitled to double their regular rate of pay for all hours worked in excess of 12 hours in any workday. Independent contractors are not entitled to overtime pay and may often work long hours without extra compensation.
All employees in California are entitled to earn at least minimum wage. As of 2020, California’s statewide minimum wage is $12.00 per hour for employers with 25 or fewer employees.
For employers with 25 or more employees, the minimum wage increases to $13.00 per hour. However, many cities and counties in California implement higher minimum wage laws for employees working in the area.
Federal and State Benefits
Independent contractor rights in California do not include some critical rights enjoyed by employees in California. These include the right to unemployment insurance. Other employee benefits in California include retirement and health benefits, workers’ compensation insurance, social security retirement benefits, and Medicare health insurance.
The Dynamex Decision and the ABC Test
The Dynamex Decision analyzed and rejected the then-existing test for determining the classification of an independent contractor vs. employee in California. The Dynamex Decision established the “ABC Test.”
The ABC Test
The Dynamex test, known as the “ABC Test, provides the following three criteria for determining whether a worker is an independent contractor or employee.
A worker may be an independent contractor if:
- The worker is free from the hiring party’s control and direction as related to the performance of the work;
- The worker performs services outside the normal scope of business of the hiring party; and
- The worker customarily engages in the same trade, occupation, or business as that they are performing.
The second and third prongs of the ABC test make it extremely difficult to classify workers as independent contractors. What’s more, you only need to satisfy one prong of the test to be found to be an employee vs an independent contractor.
Soon after the California Supreme Court issued the Dynamex Decision, the California Legislature passed AB5, which makes the ABC test part of the California Labor Code.
Retroactive Application of The ABC Test
On January 14, 2021, the California Supreme Court determined that the Dynamex ruling applies retroactively to all pending cases existing before the April 2018 ruling.
When the California Supreme Court issued its decision in the Dynamex ruling in April 2018, the court declined to answer whether the decision would apply retroactively. The California Supreme Court in Vasquez v. Jan-Pro Franchise International, Inc. issued the retroactive decision in response to a certified question from the United States Court of Appeals for the Ninth Circuit.
In Vasquez, the hiring entity, Jan-Pro, argued that California’s AB5 should not apply retroactively due to the profound transformation created by AB5 in California. However, the California Supreme Court ruled that use of the ABC test existed in California for years. The Dynamex ruling only authoritatively defined the scope of employment relationships in California. The Vasquez case now returns to the United States Court of Appeals for the Ninth Circuit where the court will abide by the Supreme Court’s ruling of retroactive application.
Although AB5 is not directly affected by the Vasquez decision, the retroactive application affects all pending cases dealing with independent contractor classification in California. Although the California Supreme Court stated that the retroactive application to independent contractor classification laws affects few cases, the decision clarifies to businesses that they should carefully review their employee classifications to ensure compliance with California’s AB5 law.
When passed, AB5 made it more difficult for app-based companies like Uber and Lyft to continue treating their drivers as independent contractors. The passing of Prop 22 in November 2020 serves to side-step this difficulty and allow drivers to continue to work as independent contractors.
App-based drivers will continue to operate as independent contractors with some changes, including a minimum earnings guarantee based on the amount of time a driver spends fulfilling a ride or delivery request. Most notably, Prop 22 does not provide app-based drivers with workers’ compensation, unemployment insurance, or family leave or allow workers to unionize.
Independent Contractors and the Cannabis Industry
In many industries, including the cannabis industry, companies moved away from hiring employees and focused on independent contractors in California.
Paying independent contractors in California does not require minimum wage, workers’ compensation, unemployment insurance, paid sick leave, or family leave. Therefore, independent contractors increase flexibility in business operations and save on costs.
However, the recent passing of AB5 impacts this desired business strategy for many cannabis companies.
For example, suppose you are a driver for a cannabis-growing facility and are treated as an independent contractor. In that case, you may be wondering whether you are truly an independent contractor vs. employee in California.
Does the cannabis company control and direct your work? For example, does a supervisor of the company direct your position and daily tasks? If so, then the first prong of the ABC test would suggest that you are not an independent contractor.
Additionally, delivering cannabis privately to homes would likely be considered within the normal scope of the cannabis business, especially if this service is offered and advertised by the cannabis company. So the second prong leans toward your classification as an employee too.
Lastly, suppose you work only for the cannabis company and do not provide driving services to any other companies. In other words, you are not operating a driving business of your own; you are simply providing those services for the cannabis company because they hired you to do so.
All of the above facts would suggest that you are not an independent contractor under the ABC test.
Was I Misclassified?
California independent contractor law provides that willful misclassification of an independent contractor carries severe penalties.
Employers may be liable for penalties ranging from $5,000 to $25,000 per violation.
If you believe misclassification occurred with your job, the statute of limitations for most claims related to wage and hour disputes is three years. It’s important that you talk to an employment lawyer as soon as possible to ensure that you pursue any remedies within that time.
What Am I Entitled to If I Wasn’t Properly Classified?
If you are a misclassified employee, California law entitles you to certain damages under your particular wage and hour claim. California independent contractor law provides that due to misclassification, you may seek recovery of the following:
- Minimum wage and overtime pay,
- Rest break and meal penalties,
- Willful misclassification penalties,
- Retroactive pay and benefits, and
- Interest, court costs, and attorney fees.
Moving forward with a misclassification claim as an independent contractor in California is a complicated process. Consult with the employment law attorneys at Workplace Rights Law Group to review your case.
Workplace Rights Law attorneys possess nearly 75 years of combined employment law experience representing clients in the Riverside and Glendale areas. We self-limit our caseloads, so no client ever feels neglected, and individually tailor our representation strategies.
We have represented employers and know their tactics. If you have questions regarding independent contractors vs. employees in California and proper classification, contact our office today. We offer a free initial case review and are ready to discuss your next move!