Endangered Species.

• Author: Allen, Bruce C.
• Position: Independent contractors - Brief Article

California Takes Aggressive Stance on Independent Contractors

Independent contractors may be California's next endangered species if the Legislature passes SB 1128 (Kuehl) in 2002. The bill would require employers to consider the principles established in the California Supreme Court case S.G. Borello & Sons vs. Department of Industrial Relations, 48 Cal.3d 341 (1989) when determining independent contractor status.

These new standards would pile on top of the already high standards that California employers must adhere to when determining if workers should be classified as independent contractors or employees. Currently, businesses must wade through a federal test as well as California's often confusing test.

Additionally, many businesses and their tax advisers are experiencing the frustration of implementing the new 20-day EDD filing requirement for independent contractors to whom they anticipate paying $600 or more during the calendar year.

Current Law

Currently, California businesses rely on the common law rules in the Unemployment Insurance Code to determine independent contractor relationships. Under these tests, a relationship exists unless the principal exercises "control" or has the "right of control" over the individual's job performance and how the individual completes the job. Factors considered under that "right of control" include, whether the principal has the power to discharge at will and without cause, and whether the work is usually done under the principal's direction or by the contractor without supervision.

Looming Changes

SB 1128 would impose the factors considered in the Borello decision, which held that a grower was the actual employer of harvesters for workers' compensation coverage purposes. This was despite a written contract delineating an independent contractor relationship and evidence that the harvesters could profit from their farming skills and share in any loss due to negligent work. The new factors that would broaden the common law test include:

* The contractor's opportunity for profit or loss depending upon managerial skills;

* The contractor's investment in equipment or materials required for a specific task;

* The contractor's employment of helpers;

* Whether the services rendered by the contractor require specific skills;

* The degree of permanence of the working relationship; and

* Whether the service rendered is an integral part of the principal's business.

The court also considered which of the...