US court decision could raise the bar for classifying workers as ‘independent contractors’

The California Supreme Court issued a ruling that could make it more difficult for companies –  including those in the sharing economy – to classify their workers as independent contractors. In its decision, issued in a case involving the courier and delivery company, Dynamex, the court noted that, ‘Although in some circumstances classification as an independent contractor may be advantageous to workers as well as to businesses, the risk that workers who should be treated as employees may be improperly misclassified as independent contractors is significant in light of the potentially substantial economic incentives that a business may have in mischaracterizing some workers as independent contractors…’. In this context, the court outlines a series of requirements that companies should meet to be able to classify their workers as individual contractors instead of employees: ‘(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.’ Commentators argue that this ruling would make it more difficult for companies like Uber and Lyft to argue that their workers are individual contractors.