From JDSupra, Raymond Nhan and Rod Sorensen recommend that employers should not rely too heavily on the United States Department of Labor’s Opinion Letter which said that workers engaged through an online platform were independent contractors. Raymond and Rod write:
First, the Opinion Letter is not binding on any court. Rather, the Opinion Letter only provides guidance for employers regarding the Department of Labor’s enforcement policy. Therefore, service providers may still sue employers for misclassification, even if it appears plainly precluded by the Opinion Letter.
Second, and perhaps more importantly, Californian employers still face liability under state law. Last year, the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) shifted the burden onto businesses to show service providers are independent contractors. To show that service providers are independent contractors, employers must satisfy the “ABC” test. That is, employers must show each of these three factors are met: “(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (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.” Id. at 964. Given that Dynamex has led to more litigation in California, employers still must take care before labeling service providers as independent contractors.
What Employers Should Know
Although initial reports have painted the Opinion Letter as a boon for companies, employers should take caution. The Opinion Letter only provides guidance as to the Department of Labor’s prosecutorial decisions. Workers may still sue employers under the FLSA for misclassification. Moreover, because of Dynamex, California law still contains many pitfalls for employers misclassifying workers as independent contractors. Compliance with the FLSA provides no defense to misclassification claims under California law.