In California, an independent contractor is defined as a person or a business providing a specific service within a certain time for compensation. The person or business achieves independent status by not being subject to managerial control for “how” the services are provided.
As business lawyers in Los Angeles, the professional team at The Hakim Law Group wants the public to know and understand the differences in the status of wage earners and independent contractors should there be an issue with one’s classification.
Independent Contractors in California
Independent contractors provide the same services as hired employees but engage as an independent entity and not as employees of the hiring company. These services include those of a graphic artist, freelance writer, consultant, and others.
All independent contractors are responsible for 100% of income, social security, and Medicare taxes that are withheld from hired employees. The independent contractor pays the financial burden of materials, supplies, software, and equipment needed to perform the service.
Under this employment classification, independent contractors have the control and flexibility of where and how they work without direct management control. The company to which the independent contractor provides the service can only control the results of the services.
Assembly Bill 5
AB 5 became law on January 1, 2020, requiring companies to reclassify independent contractors as employees in certain conditions.
This legislation was enacted to increase oversight of companies that hire a large number of workers in the gig economy, like Lyft, Uber, and DoorDash. All companies in California must utilize a three-prong test for this reclassification.
The Independent Contractor Test
AB 5, and the rules under it, were enacted to protect independent contractors from misclassification.
In 2018, the California Supreme Court issued a decision in the Dynamex case that rejected the in-place classification test for workers and independent contractors.
A new standard was incorporated based on the Court’s decision. As of January 1, 2020, all workers in California are presumed employees, unless certain conditions are met. These conditions are now in the ABC test that resulted from the Dynamex decision.
The ABC Test
An employee in California can be classified as an independent contractor if a worker:
- remains free of managerial control and direction relating to performance;
- performs duties outside of a company’s core business; and
- engages as an established business.
In simpler terms, if a worker offers services to other businesses, has an established business, and provides a unique skill, then the worker is likely an independent contractor. Please note however, that AB 5 carved out a specific exemption for an individual who holds an active license from the State of California and is practicing in any one of several recognized professions including lawyers. Other recognized professions which were exempted include architects, engineers, private investigators, and accountants.
It is imperative for an independent contractor, as an established business, to have a solid independent contractor agreement to present to all hiring companies.
If you believe your position with a company is misclassified, then you need the advice and guidance of a business lawyer in Los Angeles to protect your rights at the State and Federal levels.
A case of employment misclassification is technical and severe. A determination can lead to a jury trial, and, if misclassification is decided, the worker could be awarded lost wages, overtime pay, and other benefits.
If you have any questions regarding your employment status, you need an experienced business lawyer in Los Angeles to review your circumstances.
The Hakim Law Group stands ready to help all workers in California regarding their employment status. Our team of skilled and highly reputable business lawyers have worked in top-tier international law firms and served as general counsel to major companies. This high level of diverse legal and business experience is paramount to our boutique approach—which produces efficient, responsive, and effective results. For further information or to schedule an appointment with a leading business attorney in Los Angeles , please contact The Hakim Law Group at 310-993-2203 or visit www.HakimLawGroup.com to learn more.