CONTRACT DRIVERS OR EMPLOYEES – RISKS AND REWARDS

Many local, regional and interstate moving companies use contract drivers. This business model has resulted in lower operating costs for movers and the flexibility to deal with seasonality of the moving business. In recent years, however, use of contractors has been under increasing scrutiny from state and federal authorities.

It has been alleged that contractors have been “mis-classified” and should be treated as employees. In most jurisdictions contractors must meet certain criteria (or tests) to be treated as independent businesses and not as employees.

A recent California Supreme Court decision (Dynamex Operations West, Inc. v. Superior Court)* has further limited the contractor-employee definition. The decision essentially places the burden on the hiring entity to establish that the worker is an independent contractor and meets the factors in the new “ABC” test.

A: An independent contractor must be free from control and direction of the hiring entity.
B: An independent contractor must perform work that is not provided by the company’s employees.
C: An independent contractor must be an established business (not just established at the request of the hiring entity).

What does this mean? For California companies, compliance with California Wage Orders could be difficult if contractors allege they are being “mis-classified”. Because California standards often make their way into the rules and regulations of other states, future compliance in all states could be an issue.

What are the unknown future financial risks? Your workers compensation insurance company could re-audit past policy years changing contractors to employees ($$). State or federal regulators could demand payment of payroll taxes for mis-classified employees ($$$$).

Any moving company using independent contractors should review their individual risks and rewards of the contractors-employee issue.

*The complete Fisher Phillips Legal Alert can be seen on my website at the bottom or the Education Materials Section