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Employees vs. Independent Contractors

app-2941689_640.jpgNew legislation proposed in California puts employers on notice that they may have to treat workers as employees rather than independent contractors. What this means in practical terms is that employers would have to offer employees benefits such as workers' compensation coverage, unemployment compensation, and other employee benefits. The bill pending in California would give companies like those operating rideshares (Lyft and Uber) or food delivery business (Door Dash) legal requirements for establishing whether a worker is an employee. New York's Governor has indicated legislators there will have to look at that same definition of employee versus independent contractor.

Employers characterize workers as independent contractors in order to get out of employment law obligations according to New York Governor Cuomo, who is urging legislation to change that status. California's AB5, which passed the Senate on September 10 and the Assembly on September 11 is awaiting signature by California's Governor Newsom. The law reflects a controversial California Supreme Court decision Dynamex where delivery drivers successfully sued Dynamex claiming that the delivery company misclassified them as independent contractors rather than employees, in violation of California's wage and worker laws.

The new legislation would presume that a worker is an employee unless an employer can satisfy a three factor "ABC Test." A: A worker is an employee unless the company demonstrates the person "free from control and direction." B: The worker performs work outside the usual course of the company's business. C: The worker is engaged in an independently established trade, occupation, or business. Given these three requirements, most Uber, Lyft, Door Dash, and other gig economy workers would be classified as employees rather than Independent Contractors. Other benefits like sick leave and injury protection and worker safety standards would apply to employees, while they do not apply to independent contractors.

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