It’s not just package express and courier companies who are alarmed by the recent California Supreme Court contractor decision – most companies in the state using individual contractors now will be forced to reclassify them as employees.
The court threw out a workable standard in place since 1989, and said that from now on workers would be considered employees unless they meet all three elements of what is called the “ABC Test:”
(A) The contractor is free from the control and direction regarding performance of the work.
(B) The work performed is outside the usual course of the contracting entity’s business.
(C) The contractor is in an independently-established trade, occupation or business.
The real problem is (B). Other states with their own ABC tests only specify work outside of the company’s physical location – not outside of its normal course of business. Thus, under the new California test, traditional owner-operator truck drivers cannot lease themselves to other firms in the trucking business. Uber and Lyft have avoided this problem in many cases by asserting they are computer app providers and are not actually in the car service business.
“Prudent employers will conduct any assessment of their contractors under the guidance of [legal] counsel to assure that the outcome of the assessment is protected by the attorney-client privilege and cannot be used against the company in the event of a later dispute,” advise lawyers with the law firm of Hopkins & Carley.
Making matters even worse, the court decision might be applied retroactively in some cases, the Hopkins & Carley attorneys warn.
“Employers should remember that re-classification can serve as a double-edged sword – it can eliminate potential future liability, but also can increase the risk of liability for the period during which the contractor classification was in effect.”