1. Misclassification – It's BIG News
Thank you all for tuning in and turning out today. There seems to be a lot of interest in this topic, and we're glad – because it behooves all businesses to understand it well.
As you can see in the screen shots, and as you hear on the news, it's no secret that that the issue of employment classification, is big news these days, and it's only getting bigger.
We've all heard about Uber's recent troubles.

2. The Tests Economic realities Control Hybrid "Permit to Work"
First, are tests that focus on “economic realities” of the relationship. Under the economic realities test, various factors are relevant, but the “[t]he ultimate concern is whether, as a matter of economic reality, the workers depend upon someone else’s business for the opportunity to render service or are in the business for themselves.”
Second, are the tests that focus on control by the principal over the worker. Under the various versions of the control test, the primary factor is whether the principal has the right to control the manner and means of how the job is performed. California common law utilizes such a test in the context of wrongful termination, discrimination, the right to reimbursement for business expenses, among other things. ]

3. Economic Realities Test
An "entity" suffers or permits' an individual to work if, as a matter of economic reality, the individual is dependent on the entity." …
The Supreme Court and Circuit Courts of Appeals have developed a multi-factor "economic realities" test to determine whether a worker is an employee or an independent contractor under the FLSA. …

4. Economic Realities Test
The factors typically include:
the extent to which the work performed is an integral part of the employer's business;
the worker's opportunity for profit or loss on his or her managerial skill;
the extent of the relative investments of the employer and the worker;
whether the work performed requires special skills and initiative;
the permanency of the relationship; and
the degree of control exercised or retained by the employer…
In undertaking this analysis, each factor is examined and analyzed in relation to one another, and no single factor is determinative.

5. Control Tests California Common Law:
Primary factor, the principal's right to control.
Secondary factors:
Whether or not the worker is engaged in a distinct occupation or an independently established business;
Whether the worker or the principal supplies the tools or instrumentalities used in the work, other than tools and instrumentalities customarily supplied by employees;
The method of payment, whether by time or by the job;
[SPOKEN (Newman):
We switch now to the second basic kind of test, the "control test." Here, the primary question is whether the principal has the right to control.
This primary test is viewed in combination with a non-exhaustive series of secondary factors, but which usually contain the following:
Whether or not the worker is engaged in a distinct occupation or an independently established business;
Whether the worker or the principal supplies the tools or instrumentalities used in the work, other than tools and instrumentalities customarily supplied by employees;
The method of payment, whether by time or by the job;
Whether the work is part of the regular business of the principal;
Whether the worker has a substantial investment in the business other than personal services;
Whether the worker hires employees to assist him;
Whether the parties believe they are creating the relationship of employer-employee; and
The degree of permanence of the working relationship.

6. Control Tests Secondary factors (cont.):
Whether the work is part of the regular business of the principal;
Whether the worker has a substantial investment in the business other than personal services;
Whether the worker hires employees to assist him;
Whether the parties believe they are creating the relationship of employer-employee; and
The degree of permanence of the working relationship.

7. Control Tests
Beaumont-Jacques v. Farmers Group, Inc., 217 Cal.App. 4th 1138 (2013):
Appellate exercised meaningful discretion by, for instance: recruiting agents for and, when selected, training and motivating those agents to sell the Signatory Defendants' products; determining her own day-to-day hours, including her vacations; on most days, fixing the time for her arrival and departure at her office and elsewhere, including lunch and breaks; preparing reports for and attending meetings of the Signatory Defendants; hiring and supervising her staff, i.e., those who worked at her office, while remitting payroll taxes for them as employees; performing other administrative tasks, including resolving problems; paying for her costs such as marketing, office lease, telephone service and office supplies; deducting those costs as a business expense in her personal tax returns; and, identifying herself as self-employed in those returns. Lastly, the DMAA specifically provided there was no employer/employee relationship. (Id. at ).
[SPOKEN (Oakes): For example, in Beaumont-Jacques v. Farmers Group, Inc., 217 Cal.App.4th 1138 (2013), Mike and I represented Farmers, securing a victorious determination on summary judgment that Farmers’ district managers were independent contractors, rather than employees. As the Court determined, applying the factors above,
Appellant exercised meaningful discretion by, for instance: recruiting agents for and, when selected, training and motivating those agents to sell the Signatory Defendants' products; determining her own day-to-day hours, including her vacations; on most days, fixing the time for her arrival and departure at her office and elsewhere, including lunch and breaks; preparing reports for and attending meetings of the Signatory Defendants; hiring and supervising her staff, i.e., those who worked at her office, while remitting payroll taxes for them as employees; performing other administrative tasks, including resolving problems; paying for her costs such as marketing, office lease, telephone service and office supplies; deducting those costs as a business expense in her personal tax returns; and, identifying herself as self-employed in those returns. Lastly, the DMAA specifically provided there was no employer/employee relationship. (Id. at ).

8. Control Tests Other examples of the Control Test: IRS 20-Factor Test
ERISA
Affordable Care Act
NLRA
[SPOKEN (Oakes): California is not the only one to use the control test. The IRS, and courts interpreting ERISA, the Affordable Care Act, and the NLRA all use modified forms of the control test.]

9. The IRS 20-Factor Test Instructions Training Integration
Services Rendered Personally
Hiring, Supervising, and Paying Assistants
Continuing Relationship
Set Hours of Work
Full Time Required
Doing Work on Employer's Premises
Order or Sequence Set
Oral or Written Reports
Payment by Hour, Week, Month
Payment of Business and/or Traveling Expenses
Furnishing of Tools and Materials
Significant Investment
Realization of Profit or Loss
Working for More Than One Firm at a Time
Making Service Available to General Public
Right to Discharge
Right to Terminate

10. Hybrid Tests
Title VII of the Civil Rights Act: “Economic realities/right to control”
ADA
ADEA
[SPOKEN (Newman): And then there are the regimes that attempt to combine the two, creating a hybrid. These include the tests under Title VII, the ADA, and the ADEA]

12. BREAKING NEWS: CALIFORNIA SUPREME COURT ADOPTS "PERMIT TO WORK" TEST
DYNAMEX V. SUPERIOR COURT
ADOPTS "PERMIT TO WORK" TEST – WORKER IS EMPLOYEE UNLESS COMPANY PROVES:
WORKER IS FREE FROM CONTROL OF HIRER
WORK IS OUTSIDE OF COMPANY'S USUAL BUSINESS
WORKER NORMALLY IN THE SAME TRADE INVOLVED IN WORK FOR COMPANY

13. How to Navigate this Rocky Terrain?
Know the tests
Know the dangers
Recognize the uncertainty, and factor that potential cost into your business plan
Devil's in the details – consult legal counsel to evaluate both your contracts and your business model
[SPOKEN (Newman): So, by now you should be scratching your head – or worse – wondering how to navigate this often treacherous terrain.
First, know the tests – the better you know them, the better you can adjust your relationships with independent contractors to seek to minimize the danger;
Second, know the dangers – there are risks in either directions. Having independent contractors means the danger of misclassification. Having employees, apart from the extra costs, means increased exposure for Labor Code violations, wrongful termination, and so on.
Spoken [Oakes]: Recognize this uncertainty, and factor that potential cost into your business plan. If your business model does not require the use of independent contractors, it might be that it is most prudent to designate them as employees.
Finally, by now you should realize that the devil is in the details. Knowing the tests is good. But in the end, the best course may be to consult legal counsel who can evaluate your contracts and business model. You might just be able to skirt the dangers we've been discussing today.
Thank you.

18. 213-614-7307 | roakes@hinshawlaw.com
Royal F. Oakes |