California Law Reclassifying Independent Contractors as Employees Takes Effect

On January 1, 2020, a new California Law, reclassifying independent contractors who meet certain criteria as employees instead, went into effect (except for workers’ compensation claims, with respect to which it will go into effect on July 1, 2020).  The new law, as has been widely reported, sets standards which are intended to make persons classified before its effectiveness as independent contractors, like drivers for the major car hire companies like Uber and Lyft, into employees who are subject to tax withholding and eligible for benefits.  The theory is that such contractors have been misclassified as independent contractors to avoid the cost and burden of treating them like employees.  Opposition to the new law was based in part on the idea that such persons were free to work, and often did work, part time or at two or more jobs and wanted that type of freedom rather than the benefits and tax treatment that would otherwise apply.  Under the new law, the person is presumed to be an employee unless she or he meets the following criteria: (i) the person is free from the control and direction of the hiring company; (ii) the person works outside the company’s “usual course” of business; and (iii) the person is customarily engaged as an independent contractor.  There are also some specific exceptions, such as certain occupations; certain professional service contacts; certain business-to-business contracts; certain construction industry contractor agreements; and certain referral contracts.  It is thought that the law will continue to be controversial, but if it remains it may spread to other states.