Employers in California recently got a wake-up call on the issue of whether to classify a worker as an "independent contractor" or an employee when a senior sales representative was awarded $8.4 million after a jury found that he had been misclassified and terminated unlawfully. Employers may want to refamiliarize themselves with the factors for determining classification set forth in the precedential California Supreme Court case Borello & Sons, Inc. v. Department of Industrial Relations 48 Cal.3d 341 (1989).

The California Superior Court entered judgment on June 30, 2009, in Gardner v. Baby Trend Inc., in which the plaintiff complained of illegal deductions from his commissions. Baby Trend argued that the plaintiff was an independent contractor rather than an employee, and, therefore, there were no legal restrictions on what it could deduct from his commissions.

In California, an individual performing services for a company is presumed to be an employee, and it is the burden of the company to prove that those services were rendered by the worker as an independent contractor. The traditional common law test of an employment relationship as the employer's right to control the manner and means of accomplishing the result desired is not the sole or even primary test of employment status in California. Rather, no single factor determines whether an individual is an employee or independent contractor.

Borello held that the facts of each service relationship must be closely examined and then the "economic realities" must be determined to decide the issue. Although the right to control remains a significant issue, the Supreme Court identified 11 other factors that must be examined, and the weight given each depends upon the particular combination of factors and the goals of the protective legislation at issue. Thus, the court stated that the absence of control by the company over details is of no consequence where the company retains pervasive control over the business operations as a whole, the worker's duties are an integral part of the operation, the nature of the work makes detailed control unnecessary, and statutory purpose favors a finding of an employment relationship.

It is also important to note that a written agreement stating that the worker is an independent contractor is not determinative of the relationship.

So, again, employers in California who employ individuals as independent contractors to perform certain regular business tasks, such as sales representation, or who convert former employees to independent contractor status, should review carefully the Borello factors to determine whether such individuals are independent contractors under state law. Otherwise, there may be potential liability under various California labor and employment laws and regulations, as the recent $8.4 million jury verdict illustrates.

If you have questions or concerns about making such determinations, please contact any member of Ballard Spahr's Labor and Employment Group.

Copyright © 2009 by Ballard Spahr LLP.
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