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California Court Rejects Challenge to New Independent Contractor Test

In the midst of the ongoing debate over the appropriate employment classification of workers traditionally considered to be independent contractors, California has served as a laboratory of evolving law.  Its State Supreme Court (in Dynamex Operations W. V. Superior Court, 4 Cal. 5th 903, 232 Cal. Rptr. 3d 1, 416 P.3d 1 (2018)) and State Legislature (through Assembly Bill 5) both recently have adopted a new definition of “independent contractor” that is intended to limit the use of contractors.  Under the new “ABC Test,” a worker will be considered as an independent contractor only if:

(a) [] the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(b) [] the worker performs work that is outside the usual course of the hiring entity’s business; and

(c) [] the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

This ABC test supplanted the economic reality test adopted by most federal circuit courts, which looks to the following six factors in determining whether a worker is a contractor or employee:

  1. The permanency of the relationship between the parties;
  2. The degree of skill required for the rendering of the services;
  3. The worker’s investment in equipment or materials for the task;
  4. The worker’s opportunity for profit or loss, depending upon his skill;
  5. The degree of the alleged employer’s right to control the manner in which the work is performed; and
  6. Whether the service rendered is an integral part of the alleged employer’s business.

Interestingly, the new California regulations have drawn fire from some independent contractors themselves, who object to the unanticipated burdens of being classified as employees.

Most recently, the U.S. District Court for the Central District of California dismissed a case brought by the American Society of Journalists and Authors and the National Press Photographers Association.  The plaintiffs challenged Assembly Bill 5 on Equal Protection and First Amendment grounds.  Specifically, they objected to the new contractor definition, as it had resulted in independent journalists and photographers losing freelancing work as the result of their clients being considered their newfound employers.  With this change, the clients became responsible for such costs as unemployment taxes, workers’ compensation taxes, state disability insurance, paid family leave, and sick leave.

The plaintiffs additionally claimed lost ownership over the copyright to their creative work, as copyright in a work created by a contractor typically vests with the contractor, whereas copyright in a work created by an employee is usually owned by the employer.

Though the U.S. District recently dismissed the journalists and photographers’ case as failing to allege constitutional violations, the case nevertheless serves as a study of the unintended consequences that can result from new independent contractor laws.  As the country increasingly turns to gig-workers to help navigate our way through the COVID-19 crisis, California’s evolving approach to the classification of contractors — and whether other states choose a similar path — will be a critical test of the viability of this approach.

 

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