INDEPENDENT CONTRACTOR OR EMPLOYEE CLASSIFICATION IS AS EASY AS ABC…OR IS IT?
May 16, 2023
Claims made by employees against California employees for alleged wage and hour violations has exploded, both in the number of claims, and the dollar value of these claims. These cases not only subject employers to damages for the alleged wage and hour violations, but also large claims for attorney’s fees by Plaintiff lawyers. Many times these awards to the Plaintiff’s attorney far outweigh the damages that may be due and owing on the underlying wage and hour claims. As such, when a California employer is subjected to one of these claims, the ability to present a strong and vigorous defense from the very start of the matter is imperative.
While making sure that the employer has acted in compliance with all of the mandatory rules and regulations with reference to the payment of wages and benefits to an employee, a more primal determination to be made is whether the party alleging the claim is or is not an employee for the purposes of making such a claim.
On April 30, 2018, in Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court clarified the standard for determining whether workers in California should be classified as employees or independent contractors for wage orders issued by the California Industrial Welfare Commission. This decision created the so-called ABC Test, requiring a hiring entity to establish three factors in order to establish that a worker is an independent contractor who was not intended to be covered by a wage order.
However, when facing a wage and hour claim, a California employer should not limit itself to a review of the decision in Dynamex when evaluating the employee versus independent contractor status of an individual making the claim.
In the case of James R. Whitlach v. Premier Valley, Inc., Whitlach, a real estate agent, brought a representative claim under the Labor Code Private Attorney General Act (PAGA) against Defendants (a franchisee of Century 21) to enforce civil penalties for violations of the Labor Code violations. PAGA allows an “ ‘aggrieved employee’ ” to recover civil penalties for Labor Code. The trial court sustained defendants’ demurrer without leave to amend on the ground that plaintiff was an independent contractor, not an employee.
In affirming the trial court’s finding that Whitlach was an independent contractor and not an employee, and was therefore barred from bring PAGA action, the appellate court relied upon the three-factor test set forth in the Unemployment Insurance Code in determining the status of Whitlach. The appellate court held that this test, while operating as an exception to the traditional test to determine employee status for other workers (i.e., the ABC test), does not violate the equal protection rights of real estate agents as they have unique occupations and are thus not similarly situated to employees protected by the ABC test.
If you are a California employer facing a wage and hour claim, the lawyers at Lerner & Weiss can help you determine the primary issue whether the claimant is an individual who has the right to assert such a claim. When the claim is brought by an eligible individual, Lerner & Weiss can also represent you in defending such a claim.