What You Need to Know about Independent Contractor Relationships in California

Courtesy of AB 5 and a (controversial) case called Dynamex Operations West, Inc. v. Superior Court of Los Angeles, California generally presumes that all of your workers are employees—not independent contractors. One potential workaround for this general presumption involves so-called “business-to-business” relationships (colloquially abbreviated “B2B”), in which one business contracts with another business to supply a worker that the latter business needs.

But things are not that simple under California law, and B2B relationships are no exception. In order for the worker performing services under the B2B relationship not to be presumptively classified as an employee under California law, the following 12 criteria must be true:

1. The business supplying talent to another business must be free from the control and direction of the latter business in connection with the work to be performed;
2. The business supplying talent to another business must provide its services directly to the contracting business—not the contracting business’s customers;
3. The business supplying talent to another business must enter into a written contract for the services to be performed;
4. If the work will be performed in a jurisdiction that requires the business supplying talent to have a business license or business tax registration, the business supplying talent has the required license or tax registration;
5. The business supplying talent to another business must have a location that is separate from the business or work site of the contracting business;
6. The business supplying talent to another business independently performs business of the same type involved in the work to be performed with the contracting business;
7. The business supplying talent to another business is free to contract with other businesses;
8. The business supplying talent to another business holds itself out to the public as available to provide the same or similar services to other businesses;
9. The business supplying talent to another business provides its own tools, vehicles, and equipment to perform its services;
10. The business supplying talent to another business can negotiate its own rates;
11. The business supplying talent to another business can set its own hours and location of work; and
12. The business supplying talent to another business is not providing services that require a license from the Contractors’ State License Board.

If the list above is daunting, it is meant to be. From our vantage point, we think criteria (2) and (9) will often be the most problematic to satisfy.

And that’s just the beginning of the analysis—not the end of it. For even if all 12 criteria are satisfied, a court would then have to further proceed to conduct a separate multi-factor test under a case known S. G. Borello & Sons, Inc. v. Department of Industrial Relations (“Borello test”) to confirm that the worker supplying labor in fact is not an employee. We’ll spare you the details of the Borello test, but suffice it to say that only if the criteria enumerated above and the Borello test are satisfied will the worker not be classified as an “employee” under California law.  Simply put, California law does its level best to discourage the classification of workers as anything other than “employees.”

For more information about how Independent Contractor Relationships can impact your business, contact us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.