In recent years, California has significantly tightened its regulations on the use of independent contractors. Unlike an employee, an independent contractor is not entitled to no-fault workers’ compensation insurance coverage. However, an employer cannot simply choose who is classified as an employee and who is classified as an independent contractor. In this blog post, our Salinas workers’ compensation defense attorney explains the most important things employers and insurers should know about independent contractors and the California ABC test.
An Overview of the ABC Test for Independent Contractors in California
Many companies and organizations in California and throughout the United States rely on the contributions of “gig workers.” In 2018, the California Supreme Court created a test (ABC test) to determine if an individual worker is an employee or an independent contractor. Soon after, legislators in Sacramento passed Assembly Bill 5 (AB 5) codifying, clarifying, and strengthening the ABC test. As explained by the California Labor and Workforce Development Agency (LWDA), a worker can only be lawfully classified as an independent contractor if all three of the following requirements are met:
- Freedom from Direct Control: Employers (hiring entity) cannot have control over how exactly an independent contractor performs their work. If a worker does not have freedom from direct control over how things are done, they must be classified as an employee.
- Outside of Business Scope: A company or organization can only classify someone as an independent contractor if that individual is providing services/performing work that is outside the ordinary scope of the business.
- Customarily Engaged in Trade: Finally, the individual in question must be customarily engaged in a specific trade/occupation that is of a similar nature to the work that is actually being performed.
Why Proper Classification Matters: Potential Sanctions for Employers That Misclassify Workers
Proper classification of workers matters in California. While employees are entitled to no-fault workers’ compensation insurance coverage from an employer, an independent contractor is not owed any workers’ compensation insurance coverage by the hiring entity. An employer that misclassifies a person as an independent contractor could face serious sanctions. Among other things, the individual that has been misclassified will result in the employer being “uninsured.”
An uninsured employer can face serious issues in California. Potential penalties for being an uninsured employer include: civil action in the form of a personal injury lawsuit by the affected worker, a maximum $10,000.00 fine per uninsured employee, a three-year increase in workers’ compensation premiums, and potentially even an injunction that suspends business operations. Ignorance is not a valid excuse. Employers have a proactive duty to properly classify workers.
Speak to Our Workers’ Compensation Defense Attorney Today
At Yrulegui & Roberts, our California workers’ compensation defense lawyers are skilled, effective advocates for clients. If you have any questions about independent contractors and the ABC test, we can help. Contact our legal team today to set up your strictly private case evaluation. We provide workers’ compensation defense services in Salinas, Monterey County, and throughout the entire surrounding area.