A recent California Supreme Court decision that rewrote the guidelines for classifying independent contractors leaves industry professionals expressing different opinions on its merits and potential impact. Meanwhile, legal experts continue to grasp its parameters.
In spring, the judicial body ruled that a national delivery company illegally classified its drivers as independent contractors. In the court opinion, justices outlined a three-part test to determine whether a worker qualifies. This, the court said, should replace the standard used over the last three decades, which the court called more complicated and open to interpretation.
To pass, the court said, individuals must meet all criteria in a so-called ABC test: They must not fall under control of the hiring firm; they must perform different work than the contracting entity; and they must have formed an independently established business.
The business community bristled at the decision. “... Employers in California that rely on independent contractors are about to discover that the California Supreme Court may have just put their business model in jeopardy,” said Sean P. Redmond, executive director of labor policy for the U.S. Chamber of Commerce, in a blog entry.
In the pool/spa industry, some believe the ruling will affect the service sector most significantly. Attorney Mark Stapke expects service technicians would be classified as employees under the ruling. “When a guy drives around in a company truck supplied by an employer, goes to locations supplied by the employer, maintains pools with chemicals supplied by the employer ... those activities are clearly within the scope of the pool service industry,” said the partner in Santa Monica, Calif.-based Stapke Law. “So under the ABC test ... you’ve got an employee there. ”
Some company owners fear possible repercussions. “I think it’s going to affect the entire industry,” said Ben Honadel, owner of Pools by Ben in Valencia, Calif. “It’ll force me to change the way I conduct business.”
Honadel truly considers his techs to be independent contractors. While they work routes for him, he said he empowers and encourages them to grow on their own. “I have been, in the past, following IRS rules very specifically, to ensure that I can demonstrate that they’re independent contractors,” he said.
He agrees that the ABC test is clearer but worries about the decision’s financial effects. “When I shift over from independent contractors to employees, there’s going to be a 20% increase in cost,” he said.
As a business owner, David Hawes, president of the Independent Pool and Spa Service Association, agrees with the decision. Since his firm started about 30 years ago, he has classified workers as employees. He sees it helping to level the playing field. “I think it’s a big win for those of us who have always had employees,” said the president of H&H Pool Service in Dublin, Calif.
Whatever one’s opinion about the development, this is a court decision, not legislation or a regulation. That somewhat muddies the issue of compliance, as business owners have no hard deadline to demonstrate compliance. Instead, they must worry about falling on the radar of state regulators if, for instance, individuals treated as independent contractors file workers compensation claims or lawsuits.
Attorneys are grappling with this question as well. The California Employment Law Council filed a request with the California Supreme Court, asking it to specify that the test applies after the decision rather than retroactively.
But the intent going forward is clear, said Steve Getzoff, outside general counsel for the Association of Pool and Spa Professionals and senior litigation partner with Lester, Schwab, Katz & Dwyer in New York: “The bottom line is the worker cannot be performing your core function,” and qualify as an independent contractor.
