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Vedder Thinking | Articles The (New) ABCs of Classifying Employees and Independent Contractors

Employee Benefit News

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The below is an excerpt from Associate Harrison Thorne's article, "The (new) ABCs of classifying employees and independent contractors," originally published by Employee Benefit News on September 13, 2019.

Properly classifying workers as either employees or independent contractors is critically important for California businesses. Employees generally are entitled to benefits that contractors are not, including sick leave, workers’ compensation coverage, overtime, and meal and rest breaks. But while relying on contractors may manifest significant upfront savings, the cost of defending a misclassification lawsuit often outweighs any savings by an order of magnitude. Moreover, an adverse judgment can be very costly, as misclassified workers may be entitled to up to four years of back wages for unpaid minimum wage and overtime, meal and rest break premiums, and various statutory penalties.

Unfortunately, properly classifying workers has never been more difficult. For the past 30 years, California businesses have used the factor-based test established in S.G. Borello & Sons, Inc. v. Dept. of Indus. Relations. Under the Borello test, classification turns on a number of factors, including the right to control the manner and means of work, the right to discharge the worker, whether the worker was engaged in a distinct occupation or business, and the skill required in the particular occupation. In 2018, however, the California Supreme Court replaced the Borello test with the employee-friendly “ABC Test” for purposes of claims brought under California’s Wage Orders. Adoption of the ABC test has, in large part, upended a three-decade period of relative certainty.

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Harrison Thorne

Associate