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California Independent Contractor Laws Broken Down

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Californian Independent Contractors

Independent contractors are different from traditional employees which has led to California independent contractor laws. They engage in business activities as an independent entity and include roles such as graphic designers, freelance writers, construction workers, consultants, and more. Individuals classified as independent contractors are not employees of the hiring company.

While there are several benefits of working as an independent contractor, you should be aware that independent contractors are not entitled to company benefits, such as workers’ compensation or retirement, and are ineligible for unemployment benefits.

Further, independent contractors are responsible for paying self-employment taxes, which include both the employer and employee portions of Social Security and Medicare taxes. In addition, independent contractors generally must provide supplies necessary to complete the projects they are hired to manage. Since the financial burden falls on the independent contractor, it is too easy for unlawful companies to abuse the legal system.

As such, it is vital to understand California independent contractor laws and how they may apply to your specific situation. If you need personalized legal advice, ensure that you speak with a labor lawyer for more information.

What is an Independent Contractor in California?

California’s contractor laws state that an independent contractor is a person or business that provides a specific service to another company in exchange for compensation. It further says that the independent contractor is under managerial control for results and not how he or she accomplishes the work.

In other words, independent contractors in California have flexibility and control over how they work, including time and location, without feedback from management. The company you serve can only exert control over the results you are producing.

Independent Contractor vs. Employee in California

Several distinctions exist between an independent contractor vs. employee. Independent contractors and employees may perform similar tasks, but their relationships with the company are very different.

DIFFERENCE #1: Free From Managerial Control

The primary difference is that an independent contractor has a right to act as his or her own boss rather than the employer dictating how, where, and when they perform their service.

Employees receive benefits, tax withholdings, and employee protections, including workers’ compensation, whereas independent contractors are responsible for these elements.

DIFFERENCE #2: Follow All Applicable Rules

While every state has its set of unique guidelines that determine an employee’s status, California’s passage of Assembly Bill 5 has specific tests that employers must perform when it comes to employee classification. AB is primarily influenced by a landslide court decision and seeks to protect workers from unsavory organizations from taking advantage of independent contractor statuses.

What is AB 5?

California Assembly Bill 5, or AB 5, is a legislative act passed by Governor Newsom in September 2019. The new law was effective on January 1, 2020. AB 5 requires companies to reclassify independent contractors as employees with a few exceptions to the rule.

The bill was designed to increase regulation over companies that hire gig workers in large numbers, including DoorDash, Shipt, Postmates, Uber, and Lyft. Companies must utilize a three-pronged test to show whether the workers should be classified as independent contractors or employees.

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California Independent Contractor Test

After a landmark decision, several new pieces of California legislation went into effect in January 2020. These new laws significantly impact businesses, employees, and independent contractors alike. The vast majority of rules under AB 5 and other assembly bills were designed to protect independent contractors from misclassification.

The Dynamex Decision

In 2018, the California Supreme Court issued a critical decision regarding the matter of Dynamex Operators West v. Superior Court of Los Angeles. The Court rejected a test determining whether to classify a worker as an independent contractor vs. employee known as the Borello test. Instead of the Borello test, an employee-friendly standard was adopted while ultimately upending the independent contractor market.

The most significant turn was how the Court incorporated a new standard that presumes all California workers are employees unless their employment meets specific criteria. The specific criteria are included in the newly accepted ABC test as a result of the Dynamex decision.

The ABC Test for Independent Contractors in California

Laws around independent contractor vs. employee relationships have mainly been ambiguous up until the Dynamex decision. While California gained the most attention over the ABC test, other states, including New Jersey and Massachusetts, have already adopted some form of it. Keep in mind that the ABC test assumes that a worker is an employee unless the test shows otherwise.

It should be noted that not all independent contractors in California are subject to the ABC test. While the test is used in some cases to determine independent contract status, it is not the only test used and does not apply universally to all independent contractors in the state.

An individual is an independent contractor in California only if they meet all three (3) requirements of the test:

  1. The worker remains free from managerial direction and control related to the worker’s performance
  2. The worker performs duties outside the scope of the company’s course of business
  3. The worker primarily engages as an established business and performs the same work as for the company

Simply put, as long as you can offer your services to other businesses, have an established entity, and provide a unique skill set, you are likely an independent contractor. Ensure that you function as one. Speak with an employment attorney to help you determine if the ABC test applies to your situation and what you can do to create a substantial independent contractor agreement that you can present to the hiring company.

California Assembly Bill 51

AB 51 prevents companies and employers from requiring employees and job applicants to agree to arbitration. It also prevents employers from engaging in retaliatory behavior against employees who refuse to enter into an arbitration agreement as a term or condition of employment.

In addition to opening up other civil remedies, the statute also provides for reasonable attorneys’ fees reimbursement and injunctive relief. Employers violating these employment laws can be criminally charged. These provisions also include those involving misclassified workers under California labor laws.

What To Do If You’ve Been Misclassified

If you believe that the company you are working for is misclassifying your employment, you have rights protected by state and federal laws. Your employer may be taking advantage of your relationship in favor of lower costs and higher profits. You may be owed lost work wages, overtime, benefits, and reimbursements. These financial losses will depend upon an evaluation of your case to establish the types of employment in which you are engaging.

Contractscounsel California Independent Contractors

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Here are steps you can take if your employer has misclassified you:

STEP 1: Preserve any and all communications between you and the company

STEP 2: Review the types of employment contracts in place for clarity regarding your relationships

STEP 3: Speak with an attorney to help you determine your legal options

STEP 4: File a civil claim against your employer for financial losses experienced

STEP 5: Ensure that you have an independent contractor agreement in place when engaging in future endeavors

An employee’s misclassification in California is pretty serious and complicated and could require a jury or judge trial to resolve. However, the law does entitle you to compensation for the losses you experienced as a result of an erroneous misclassification. Getting legal advice from an attorney will help you work through any Department of Labor (DOL) issues to pursue a remedy on your behalf.

When engaging with a hiring company as an independent contractor in California, it is critical to have a fully-executed independent contractor agreement active. If you need help drafting an independent contractor agreement, post your project to ContractsCounsel for free. Sign-up today!

Overall, it is important to consult with a labor lawyer for personalized legal advice regarding California independent contractor laws and how they may apply to specific situations.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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