Employee or Independent Contractor? California’s New "ABC" Test

The decision whether to classify a worker as an employee or an independent contractor can have a significant impact on both the worker and the business. As an employee, a worker is entitled to the protections of the labor laws, including payment of minimum wage and overtime, meal and rest breaks, paid sick leave, and other workplace protections. An employer is also responsible for paying an employee’s federal Social Security and payroll taxes, employment taxes, unemployment insurance taxes, and providing worker’s compensation insurance. On the other hand, independent contractors obtain none of these numerous labor law benefits, and the business does not bear any of these costs or responsibilities.

Although in some circumstances classification as an independent contractor may be advantageous to workers as well as to businesses, many unscrupulous employers misuse the independent contractor label to circumvent the labor laws and to obtain an unfair competitive advantage over competitors who properly classify similar workers as employees.  The result is that many California workers have been denied proper compensation and the labor law protections to which they were entitled.

California’s New “ABC” Test for Independent Contractors

In a recent decision Dynamex Operations West, Inc. v. Superior Court (SC S222732 4/30/18), the California Supreme Court cracked down on the misclassification of workers as independent contractors and created a new “ABC” test to determine when a worker should be properly classified as an employee. Under this test, a worker is properly considered an independent contractor only if the employer establishes: (A) that the worker is free from the control and direction of the employer in connection with the performance of the work; (B) that the worker performs work that is outside the usual course of the employer’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the employer.

Misuse of the independent contractor label may subject an employer to significant liability for unpaid wages, overtime, missed meal and rest breaks, and other Labor Code violations.


Expansion of the California Equal Pay Act

Expansion of the California Equal Pay Act

In 2017 California enacted several amendments to Labor Code section 1197.5, which resulted in significant expansion of the California Equal Pay Act. While the old law prohibited wage disparity between employees of the opposite sex, under the new law, the protections have been expanded to prevent a wage disparity between employees who are of a different race or ethnicity.

In deciding to expand the protections of Equal Pay Act, the California legislature found that the gender wage gap in California remained steady, with women earning only 84 cents on the dollar compared to men. However, for minority women the disparity is even more substantial, with African American women in California making just 63 cents and Hispanic women less than 43 cents for every dollar earned by white non-Hispanic men.

Due to the history of women receiving lesser pay than men for the same jobs, under the new law, an employee’s prior salary history can no longer be used as justification for a wage disparity.

Exceptions to the California Equal Pay Act

As with prior versions of the law, there are exceptions. The prohibitions against wage disparity apply to employees who are doing substantially similar work, when considering skill, effort, and responsibility, and when performed under similar working conditions. An employer will not be in violation of the law when a wage differential is based on one or more of the following legitimate factors:

  • A seniority system.
  • A merit system.
  • A system that measures earnings by quantity or quality of production.
  • A bona fide factor other than sex, race or ethnicity, such as education, training, or experience relevant to the job position and the needs of the business.

An employer is also required to demonstrate that factors relied upon were applied reasonably and account for the entire wage differential. In other words, the employer must prove that any wage disparity is entirely unrelated to an employee’s gender, race or ethnicity.

An employee who was the victim of wage discrimination in violation of the equal pay laws is entitled to recover twice the wages he or she lost due to the employer’s discrimination, plus interest and attorney’s fees.


Los Angeles Mandates Minimum Wage Increase and Paid Sick Leave

Los Angeles Mandates Minimum Wage Increase and Paid Sick Leave

New Minimum Wage Ordinances in the City of Los Angeles have increased the minimum wage for employees who work for an employer within the City limits for a minimum of two hours during any particular week. The new ordinances also require employers to provide employees with paid sick leave.

Under the new ordinances, which first went into effect on July 1, 2016, the minimum wage rate will continue to rise over the next five years until reaching $15/hour for all employees working in the City of Los Angeles by the year 2021. The applicable minimum wage rates and annual increases depend on the number of people employed by a particular employer as detailed in the following Minimum Wage Chart:

Increase Date Employers with 25 or fewer Employees Employers with 26 or more Employees
7/1/2016 $10.00 $10.50
7/1/2017 $10.50 $12.00
7/1/2018 $12.00 $13.25
7/1/2019 $13.25 $14.25
7/1/2020 $14.25 $15.00
7/1/2021 $15.00 $15.00


In addition to the minimum wage increase, under the new ordinances, employees who work in the City of Los Angeles for the same employer for 30 days or more within a year, will now be entitled to 48 hours of paid sick each year based on the following guidelines:

  • Employees will be entitled to take up to 48 hours of sick leave in each year of employment, calendar year, or 12-month period.
  • Employers must provide sick leave either: 1) by providing the entire 48 hours to an employee at the beginning of each year of employment, calendar year, or 12-month period; or 2) by providing the employee one hour of sick leave per every 30 hours worked.
  • Paid sick leave shall accrue on the first day of employment or July 1, 2016, whichever is later.
  • An employee may use paid sick leave beginning on the 90th day of employment or July 1, 2016, whichever is later.
  • Accrued unused paid sick leave shall carry over to the following year of employment and may be capped at 72 hours. An employer may set a higher cap or no cap at all.
  • If an employer has a paid leave or paid time off policy or provides payment for compensated time off, that is equal to or no less than 48 hours, no additional time is required.
  • An employer shall provide paid sick leave upon the oral or written request of an employee for themselves, a family member or for any individual related by affinity whose close association with the employee is the equivalent of a family relationship. An employee may also be required to provide reasonable documentation of an absence from work for which paid sick leave is or will be used.
  • An employer is not required to provide compensation to an employee for accrued or unused sick days upon termination, resignation, retirement, or other separation from employment.
  • If an employee separates from an employer and is rehired by the employer within one year from the date of separation, previously accrued and unused paid sick time shall be reinstated.

Employer Requirements

Under the new minimum wage ordinances, employers are required to do the following:

  • Pay hourly minimum wage for hours worked by employees within the City of Los Angeles.
  • Post the Office of Wage Standards Wage Notices in a conspicuous place at any workplaces or job sites in multiple languages, including any language spoken by at least five percent (5%) of the employees at the workplace or job site.
  • Keep payroll records for a period of four (4) years.
  • Provide employees with the employer’s name, address, and telephone number in writing at the time of hire.
  • Employers are prohibited from retaliating against any employee exercising rights under the Minimum Wage and Wage Enforcement Division Ordinances.


Employees who are denied the required minimum wage increases or paid sick leave are entitled to the following, among other, remedies:

  • Payment of wages unlawfully withheld;
  • Payment of Sick Time Benefits unlawfully withheld; and/or
  • An additional penalty of up to $120 to the Employee and up to $50 to the City for each day that either violation occurred or continued.
  • In cases of retaliation, the employee may be entitled to reinstatement, as well as triple the wages, sick time and penalties owed.
  • An employee may also file a lawsuit in civil court.

Additionally, employers who violate the provisions of these Minimum Wage Ordinances may be subject to administrative fines for each and every day that a violation occurs.


Los Angeles Minimum Wage Ordinance

Los Angeles Office of Wage Standards Ordinance


Security guards entitled to compensation for on-call hours

Security guards entitled to compensation for on-call hours

CPS Security Solutions, Inc., employed on-call guards to provide security at construction worksites. Part of each guard’s day was spent on active patrol. Each evening, guards were required to be on call at the worksite and to respond to disturbances should the need arise.

While on-call, the guards were required to reside in onsite trailers provided by CPS.  An on-call guard who wanted to leave the worksite had to first notify a dispatcher where he or she would be and for how long. The on-call guard would only be permitted to leave if another employee was available for relief.  If no reliever was available, the on-call guard was required to remain onsite, even in the case of a personal emergency. Even if relieved, an on-call guard was required to stay close enough to the site to be able return within 30 minutes, and had to be available by pager or telephone.

The CPS security guards were paid hourly for time spent patrolling the worksite, however, they received no compensation for on-call time unless they were required to perform certain work duties during their on-call period, such as responding to an alarm or conducting an investigation.

The CPS security guards filed suit, alleging that CPS’s on-call compensation policy violated minimum wage and overtime obligations. 

The California Supreme Court concluded that the security guards’ on-call time constituted hours worked within the meaning of California’s labor laws and was subject to minimum wage and overtime requirements. The  Supreme Court ruled that security guards are entitled to compensation for on-call hours spent at their assigned worksites under their employer’s control, including sleep time. 

Mendiola v. CPS Security Solutions (SC S212704 En Banc 1/8/15)


Supreme Court denies wage claims by Amazon.com warehouse workers

The United States Supreme Court denies wage claims by Amazon.com warehouse workers. 

In a unanimous decision, the United States Supreme Court held that warehouse workers who packaged deliveries for Amazon.com customers, were not entitled to compensation under the Fair Labor Standards Act of 1938 (FLSA) for time spent undergo­ing security screenings before leaving the warehouse each day. 

Integrity Staffing Solutions, Inc., required its hourly warehouse workers, who retrieved products from warehouse shelves and packaged them for delivery to Amazon.com customers, to undergo a security screening before leaving the warehouse each day. Several former employees sued Integrity Staffing Solutions, Inc. alleging they were entitled to compensation under the Fair Labor Standards Act for the time they spent each day waiting to undergo and undergoing those screenings. The former employees further alleged that the screenings were for the sole benefit of the employers and their customers, rather than the employees, as they were intended to prevent employee theft.

Applying the Portal-to-Portal Act, which exempts employers from liability for certain work-related activities, including preliminary or postliminary activities, “which occur either prior to the time on any particular workday at which such employee commences, or subsequent to the time on any particular workday at which he ceases, such principal activity or activities” (29 U. S. C. §254(a)), the Court held the security screenings at issue in the case were not compensable postliminary activities, since they were not integral and indispensable to the employee’s job duties.

The Court explained that “an activity is integral and indispensable to the principal activities that an employee is employed to perform—and thus compensable under the FLSA—if it is an intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.”

Relative to the security screenings at issue in the case, the Court determined they were not the “principal activity or activities which [the] employee is employed to perform,” as “Integrity Staffing did not employ its workers to undergo security screenings, but to retrieve products from warehouse shelves and package those products for shipment to Amazon customers.”  Indeed, “Integrity Staffing could have eliminated the screenings altogether without impairing the employees’ ability to complete their work.”

Since the Court concluded the employees’ time spent waiting to undergo and undergoing Integrity Staffing’s security screenings is not “an activity is integral and indispensable to the principal activities that an employee is employed to perform,” the Supreme Court denied the employees’ claims for compensation for such time under the Fair Labor Standards Act.


Integrity Staffing Solutions, Inc. v. Busk 574 U.S. ___ (2014)

Fair Labor Standards Act of 1938

Los Angeles Employment Lawyers




The Healthy Workplaces Healthy Families Act 2014

The Healthy Workplaces Healthy Families Act 2014

California enacted The Healthy Workplaces Healthy Families Act of 2014 granting employees mandatory paid sick days.

Beginning on July 1, 2015, California employers will be required to provide paid sick days to certain California employees. Employees who work for 30 or more days within a year from the date of commencement of employment are entitled to receive paid sick days. The paid sick days accrue at a rate of no less than one hour for every 30 hours worked. Employees will be entitled to use accrued sick days beginning on the 90th day of employment. An employee’s accrued paid sick days will carry over to the following year of employment.

An employer may limit use of paid sick days to 24 hours or three days in each year of employment. However, employer’s are prohibited from discriminating or retaliating against an employee who requests paid sick days.

Purpose of the Law

The Healthy Workplaces Healthy Families Act of 2014 was enacted to provide protection to California employees. The law accomplishes this purpose by doing the following: 

  1. Ensuring that California workers can address their own health needs and the health needs of their families with paid sick days;
  2. Decreasing health care costs by enabling workers to seek early and routine medical care for themselves and their family members;
  3. Protecting California workers from losing their jobs while using sick days; and 
  4. Providing economic security to California employees who take time off from work for reasons related to domestic violence or sexual assault.
Sick days may be used for “diagnosis, care, or treatment of an existing health condition of, or preventive care for, an employee or an employee’s family member.” Family members who are covered by the law include children, parents, spouses, domestic partners, siblings, as well as grandchildren and grandparents. Sick days may also be used for an employee who is a victim of domestic violence, sexual assault, or stalking.
An employer may satisfy the requirements of the The Healthy Workplaces Healthy Families Act of 2014 if the employer has a paid leave policy or paid time off policy that satisfies the accrual, carry over, and use requirements of the Act.  


FedEx Drivers are Employees Not Independent Contractors

FedEx Drivers are Employees Not Independent Contractors

In a class action lawsuit brought on behalf of approximately 2300 full-time FedEx delivery drivers in California between 2000 and 2007, the Ninth Circuit Court of Appeals ruled that by law the FedEx drivers were employees under California’s right-to-control test.  The Court held that labeling of the drivers as independent contractors in FedEx’s Operating Agreement did not make them so.

The Court explained that the most important factor in determining employee versus independent contractor status is the right-to-control test. The Court held that since FedEx had broad rights to control the manner in which its drivers perform their work under, the right-to-control test strongly favored employee over independent contractor status   On that basis, the Court held the drivers were employees as a matter of law.  

For the Full Court Opinion click here

Employee v. Independent Contractor



Employees must be reimbursed for cell phone use

Employees must be reimbursed for cell phone use

The California Court of Appeals ruled that an employee who is required to use a personal cell phone for work-related calls, must be reimbursed by their employer. This applies even when an employee has a cell phone plan with unlimited minutes. The reimbursement amount owed by the employer is a reasonable percentage of the employee’s cell phone bill.

The Court’s ruling is based on Section 2802(a) of the California Labor Code, which provides that “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.”

This decisions confirms that employees must be reimbursed for cell phone use when required to use a personal cell phone for work-related calls, even if the employee has an unlimited cell phone plan.

Cochran v. Schwan’s Home Service, Inc.




Summary of California's Equal Pay Act

An Employee’s Right to Equal Pay

California and Federal laws generally prohibit an employer from paying its employees less than the rates paid to employees of the opposite sex. This applies when the employees’ jobs require substantially similar work, when considering their skill, effort, and responsibility, and are performed under similar working conditions. (Cal. Labor Code section 1197.5.) As an example, an employer would not be permitted to pay a female secretary less than a male secretary working in the same office and performing the same job duties. To do so would violate the equal pay laws.

Exceptions to the Equal Pay Rule

While prohibiting wage discrimination, the equal pay laws, do not prevent employers from compensating employees of the opposite sex differently for legitimate reasons, including based on a seniority system, a merit system, a system which measures earnings by quantity or quality of production, or another system based on any bona fide factor other than sex, such as education, training, or experience. In other words, an employer can still reward its employees for good work performance without violating the equal pay laws. To qualify for an exception, it is the employer’s burden to prove that a wage disparity is based on a legitimate reason entirely unrelated to the sex of the respective employees.

Prohibition against Retaliation by Employer

Under California law, an employer is prohibited from retaliating or discriminating against an employee in any way for enforcing his or her rights under the equal pay laws. An employer also cannot prevent an employee from disclosing his or her own wages, discussing the wages of other employees, inquiring about the wages of other employees, or assisting or encouraging other employees to exercise their rights under the equal pay laws.

An Employee’s Remedies for Wage Discrimination

Wage discrimination is viewed as a very serious matter in California, which is reflected in the remedies available to an aggrieved employee. An employee who was the victim of wage discrimination in violation of the equal pay laws is entitled to recover the wages he or she lost due to the discrimination, plus interest. The employee is also entitled to recover an additional equal amount from the employer as liquidated damages. For example, this means that an employee who was deprived of $15,000 in wages due to his or her employer’s violation of the equal pay laws would be entitled to recover the unpaid $15,000 with interest, plus an additional $15,000 with interest, for a total recovery in excess of $30,000. In the event a law suit is necessary to recover these damages, an employee may also be entitled to an award of attorney’s fees. An employee who was subjected to retaliation for enforcing the right to equal pay may also be entitled to reinstatement and reimbursement for lost wages and work benefits resulting from the retaliation.


Wage discrimination is a serious matter that should not be overlooked by California employers or employees. California employers should be cognizant of the applicable laws when setting a pay scale for its employees. Similarly, California employees should be aware of their rights to equal pay and when those rights have been violated. When in doubt, it is important to consult with an experienced employment attorney.

Additional Resources:

California Labor Code

California Division of Labor Standards Enforcement (DLSE)

California Department of Fair Employment and Housing

Wage Discrimination