California Misclassified Independent Contractors Settle for Employee Status—is it the Right Choice?

Santa Clara, CAFrom strippers to cooks to construction workers, independent contractors who say they are misclassified under California labor laws may want to take into consideration what they stand to lose before filing a misclassification lawsuit to be classified as an employee. Sure, the benefits are enticing but they come at a price, such as loss of independence

A California Supreme Court landmark decision last year,Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, has upended--or disrupted, as many employers believe--small and medium businesses in California. Either way you look at it, the future of work and the economy has changed. (If you haven’t heard about Dynamex, the same-day courier and delivery company classified its delivery drivers as independent contractors. The drivers claimed they should have been employees and the court ruled against Dynamex, saying that the delivery drivers were misclassified.)

Independent Contractors

Besides the obvious app-based companies like Uber and Lyft, many other industries, like strip clubs and hair salons have been affected. On the one hand, those backing the ruling (CA AB5) assert that independent contractors working in the gig economy are deprived of pay and benefits, crucial for stable employment. On the other hand, business owners (such as strip club owners reported by PoliticoCalifornia last week) warn that “disrupting the status quo will hurt dancers by cutting into their take-home pay and ossifying once-flexible work.”

Backing up the strip club owners is Stormy Daniels, stating in the Los Angeles Times that classifying strippers as employees would not benefit them. She said that “independent contractors can perform when, where, how and for whom we want. If we are classified as employees, club managers would be empowered to dictate those conditions.”

Most strippers are under a “certain” age and perhaps don’t look too far into the future to weigh employee benefits v. independence.

Kristyn Hansen, age 32, was featured in the LA Times last week. She was classified as an independent contractor at Stews Barber Shop, where she cut hair nine hours a day, three days a week without overtime pay or breaks, without unemployment or disability insurance. She loved it. But she was classified as an employee last October and says her pay dropped and has to work four nine-hour days. Hansen says she is stressed out.

Dynamex and ABC Test

In the Dynamex decision, the state Supreme Court adopted a so-called ABC test featuring three factors an employer must establish to demonstrate a worker is properly classified as an independent contractor. The three factors are:

A. The worker is free from the control and direction of the hiring entity in connection with the performance of the work.

B. The worker performs work that is outside the usual course of the hiring entity’s business.

C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Assembly Bill 5

California Assemblywoman Lorena Gonzalez has written a bill to make it more difficult for companies to avoid the employee rights of their workers by misclassifying them as independent contractors. She said that, when workers fall under the uncertainty of independent contracting, it falls on the state to take care of them when they cannot find a job, they get sick or they retire. “In a state with one of the country’s highest poverty rates, this court decision is crucial to helping Californians maintain solid employment in an economy that’s left millions struggling,” she said.

According to a 2017 study published by the UC Berkeley Labor Center. More Californians work as independent contractors as their main job than compared to the United States workforce overall. The California Division of Labor and Enforcement Standards says that misclassification of workers as independent contractors cost the state $7 billion annually.

“It is important to take action supporting the decision because others, including fellow lawmakers, have proposed altering its provisions,” Gonzalez added.

An updated version of AB 5 will provide exemptions for certain groups of professionals that have long operated as independent contractors, Gonzalez said, but exotic dancers will likely not be among them. But more misclassification lawsuits are likely.