California HR Compliance: EDD Factors for classifying Independent contractors

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January 21, 2015

If an individual is classified as an employee, a company must report the employee's earnings to the Employment Development Department ("EDD") and must pay employment taxes on those wages. If an individual is properly classified as an independent contractor, no such reporting and payment of taxes is required. Accordingly, the EDD has a vested interest in rooting out misclassification of independent contractors. The initial test utilized is whether the individual has the right to direct and control the manner and means by which the work is performed. If it is not clear from the face of the relationship whether the worker or the principal has the right of control, the EDD looks to the following factors:

(a) Right to control. The company's right to control the manner and means of performance is the most important factor. When the company has a right to exercise control, it is a strong indication that the person is an employee.

(b) Right to terminate at will. The company's right to terminate at will without cause or without notice is an indication of employee status.

(c) Distinct occupation. An important factor is whether the worker has an occupation or business distinct from that of the company. If success of the business depends on the worker's services, the individual might be deemed an employee.

(d) Level of supervision. Independent contractors do not work under the direct supervision of the company.

(e) Industry practice. The courts consider whether the kind of service\ in question is usually done by an employee or independent contractor.

(f) Own tools. Usually contractors furnish their own tools. Where tools are not significant to the position, no inference is created.

(g) Duration of service. The length of time an independent contractor performs a service should be short.

(h) Skill. Unskilled labor is usually supervised, and therefore creates an employee-employer relationship. The opposite is true of highly skilled positions.

(i) Own hours. Independent contractors set their own hours.

(j) Job location. Independent contractors generally not required to perform work in a specific area or a fixed route.

(k) Services do not have to be rendered personally. Independent contractors are hired to perform a job and it should not matter who performs it and/or how it is done. The independent contractor has the right to hire others to assist him/her.

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About the author:
• Partner with Hanson Bridgett LLP • Focuses on employment, labor and benefits litigation, with an emphasis on defense of complex employment disputes • Conducts wage and hour audits and advises on compliance • Substantial class action experience in wage and hour, pension and retiree health cases • Represented employers in the transportation, life sciences, utility, manufacturing, health care and financial industries, as well as public sector clients • Successfully litigated a number of wage and hour class actions involving alleged violations of meal and rest breaks, and alleged misclassification of employees as independent contractors • Currently litigating an independent contractor, alleged misclassification class action case in the transportation industry • J.D. degree, cum laude, University of California, Hastings College of the Law; M.A. degree, University of Minnesota; B.A. degree, University of Minnesota

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