02 Jan Am I an Independent Contractor or an Employee?
Each year, a large number of lawsuits are filed concerning worker classification. When workers are classified as independent contractors, they lose many of the important rights and benefits that proper employees enjoy, such as workers’ compensation and disability insurance coverage. When workers in the United States are classified as independent contractors, it does not mean that they are correctly classified as such. Instead, it helps to understand how independent contract laws work in New York and California, and each state has its own criteria to determine how to classify workers.
Why the Difference is Important
The difference between an independent contractor and employee matters because a large number of legal protections including minimum wage laws and the Fair Labor Standards Act only apply if a worker is an employee rather than independent contractor. Because a worker’s classification as an employee requires the employer to uphold many additional obligations, it should come as no surprise that some employers try to avoid this duty by falsely classifying workers as independent contractors.
New York’s Independent Contractor Test
In the state of New York, courts frequently use the “economic reality” test to determine if a worker is an employee or an independent contractor. This test examines several factors, which include the following:
- The degree of skill and independent initiative required to perform the work
- The degree to which the work is an integral part of the employer’s business
- The duration of the working relationship
- The worker’s opportunity for profit and loss in the position
- Whether the worker is subject to the control of the individual for whom the work is performed
Under New York’s “economic reality” test, it does not matter much if a person signed a written agreement labeling the individual as an independent contractor. On the other hand, receiving documents that are used by employees does not mean that a worker will automatically fall into this classification, either.
California’s “ABC” Test for Independent Contractors
In a recent ruling, the California Supreme Court defined the test that the state used to distinguish if a worker is an employee or an independent contractor. Under this new “ABC” test, a worker is considered an independent contractor only if three requirements can be established:
- The worker must be free from the degree of control and direction that the employer typically exercises over its employees.
- The worker must perform work outside the scope of the employer’s business. This work must be viewed by others as not occurring in the entity’s business.
- The worker is customarily engaged in an independently established occupation.
While California courts have provided little direction about how these factors should be interpreted, the court has provided examples of workers who would be appropriately classified as independent contractors and individuals who would be considered employees.
It currently remains to be seen if this new law will apply retroactively or if it will only apply to workers from the date of the decision onward.
Speak with a Knowledgeable Employment Lawyer
If you have concerns about your status as an independent contractor, we invite you to contact Heerde Blum LLP today. You can reach us online or by calling (212) 920-5858 or (310) 620-7172 to schedule an initial free consultation.