In Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018), the California Supreme Court set forth a new test for determining whether a worker should be classified as an employee or an independent contractor for purposes of California wage-and-hour laws.
The Dynamex case established a more stringent test than previously established California law, one that forced the recategorization of many thousands of California workers from independent contractors to employees. The so-called “ABC Test” presumes that a worker is an employee unless the employer can prove all three of the following elements:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
In practice, Part B of the Dynamex test makes it almost impossible to categorize most workers as anything other than employees.
In 2019, the California Legislature passed AB 5, which effectively codified the Dynamex decision while creating exemptions for dozens of specific occupations and professional services:
Specific occupations – the worker must be a physician, surgeon, dentist, psychologist, veterinarian, securities broker, investment adviser, insurance broker, lawyer, private investigator, accountant, real estate agent, architect, engineer, direct salesperson, or commercial fisherman
Certain professional service providers – the worker must maintain a separate business location, negotiates their own rates, sets their own hours, in engaged in an independently established business of the same kind of work, exercise discretion and independent judgment for the services being performed and, for any project exceeding six months, have a business license.
Business-to-business relationships – the service provider must pass a stringent 12-point test demonstrating that the relationship is a bona fine business-to-business relationship.
Suffice it to say, AB 5 was met with an avalanche of resistance from employers throughout California, perhaps most prominently by the Uber- and Lyft-sponsored Proposition 22, a “gig” economy exemption which was passed by voters last November and, most recently, held unconstitutional by Alameda County Superior Court Judge Frank Roesch in August 2021. This remains in legal “limbo” as the decision is appealed.
Other attempts have been more successful. AB 2257 expanded the list of exemptions to include journalists, online content providers, consultants and, most significantly, large categories of entertainment industry workers such as recording artists, musical engineers, and individual performance artists. Additionally, it exempted contracting relationships for purposes of providing services for a “single-engagement event,” which includes “a stand-alone non-recurrent event in a single location, or a series of events in the same location no more than once a week.”
While this very last exemption may provide some relief for jewelry professionals in the context of trade shows or other exhibitions, these exemptions have largely been inapplicable to the industry. It is surely the case that many California jewelry industry workers that have been considered independent contractors and classified as such for years are, in fact, required to be classified as employees for purposes of California wage-and-hour law.
The rapid changes in California law and resulting confusion are also instructive for jewelry professionals outside of California. While state laws vary greatly, more and more states are moving to categorize more and more workers as employees subject to various worker protections not available to independent contractors. In many cases, misclassification of workers can result in draconian penalties from state enforcement agencies. These recent changes in California law serve as a sobering reminder to jewelry-industry employers across the country that just because you classify someone as an independent contractor and issue them a 1099 at the end of the year doesn’t mean your state employment authorities will view this classification as correct. It is strongly advisable for jewelry professionals to consult employment law counsel in their relevant home state to make sure their classification practices comport with current state law.
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