California Cannabis Workers: Independent Contractor Exceptions

California deems practically every kind of staff staff. There are, nonetheless, some necessary circumstances the place staff could also be labeled as contractors. In my first submit of this sequence, “Classifying California Hashish Staff,” I defined the fundamentals of worker versus impartial contractor classification. At present, I take a look at a few of the key impartial contractor exceptions for California hashish companies.

Fast refresher on California hashish employee classification

Just a few years in the past, the state handed Meeting Invoice 5, codifying the so-called ABC Take a look at from a 2018 case, Dynamex Operations West, Inc. v. Superior Courtroom. The ABC Take a look at places the onus on employers to show that staff are contractors by assembly all three of the next parts:

(A) The particular person is free from the management and course of the hiring entity in reference to the efficiency of the work, each underneath the contract for the efficiency of the work and actually.

(B) The particular person performs work that’s outdoors the standard course of the hiring entity’s enterprise.

(C) The particular person is usually engaged in an independently established commerce, occupation, or enterprise of the identical nature as that concerned within the work carried out.

As I discussed in my final submit, although the take a look at is brief, it might nonetheless be tough for employers to satisfy. So the legislature crafted just a few exceptions to the ABC Take a look at. I clarify two of them under, every of which might be necessary for hashish companies.

Enterprise-to-business impartial contractor exceptions

Generally hashish companies assume they will get round classification in the event that they contract with an entity versus an individual. However that’s not at all times the case! California has a B2B independent contractor exception, however it’s an uphill battle to satisfy. If a hashish firm contracts with a enterprise (partnership, LLC, company, and so on.), then to ensure that the B2B exception to use, (1) the corporate should show that every one TWELVE (!) of the under standards are met, after which (2) apply the Borello Take a look at elements that I talk about on the backside of this submit. Listed here are the 12 standards for half one of many take a look at:

1. The enterprise service supplier is free from the management and course of the contracting enterprise entity in reference to the efficiency of the work, each underneath the contract for the efficiency of the work and actually.
2. The enterprise service supplier is offering providers on to the contracting enterprise moderately than to clients of the contracting enterprise. This subparagraph doesn’t apply if the enterprise service supplier’s staff are solely performing the providers underneath the contract underneath the title of the enterprise service supplier and the enterprise service supplier often contracts with different companies.
3. The contract with the enterprise service supplier is in writing and specifies the fee quantity, together with any relevant charge of pay, for providers to be carried out, in addition to the due date of fee for such providers.
4. If the work is carried out in a jurisdiction that requires the enterprise service supplier to have a enterprise license or enterprise tax registration, the enterprise service supplier has the required enterprise license or enterprise tax registration.
5. The enterprise service supplier maintains a enterprise location, which can embody the enterprise service supplier’s residence, that’s separate from the enterprise or work location of the contracting enterprise.
6. The enterprise service supplier is usually engaged in an independently established enterprise of the identical nature as that concerned within the work carried out.
7. The enterprise service supplier can contract with different companies to offer the identical or related providers and keep a clientele with out restrictions from the hiring entity.
8. The enterprise service supplier advertises and holds itself out to the general public as out there to offer the identical or related providers.
9. In line with the character of the work, the enterprise service supplier gives its personal instruments, automobiles, and tools to carry out the providers, not together with any proprietary supplies that could be essential to carry out the providers underneath the contract.
10. The enterprise service supplier can negotiate its personal charges.
11. In line with the character of the work, the enterprise service supplier can set its personal hours and placement of labor.
12. The enterprise service supplier will not be performing the kind of work for which a license from the Contractors’ State License Board is required, pursuant to Chapter 9 (commencing with Part 7000) of Division 3 of the Enterprise and Professions Code.

As talked about, if the hiring firm can show that the entire above parts are met, then it might do the Borello Take a look at evaluation and conclude that there isn’t any employment relationship. Both approach, even proving the above 12 parts are met is usually a problem. If even one in every of them will not be met, then an organization is caught with the ABC Take a look at from Dynamex, which tends to be way more favorable to discovering an employment relationship than the Borello Take a look at.

Skilled providers impartial contractor exceptions

The ABC Take a look at and Dynamex additionally don’t apply to certain contracts for “skilled providers,” which has a slim definition. Related to hashish companies, this will likely embody some (however not all) advertising relationships, HR directors, and artists. The {qualifications} are very particular so companies can not simply assume that any advertising skilled, for instance, is exempt. In reality, like with the B2B impartial contractor exception, hiring firms nonetheless must show a variety of elements – happily, solely six this time – earlier than doing the Borello Take a look at evaluation. These six elements are:

1. The person maintains a enterprise location, which can embody the person’s residence, that’s separate from the hiring entity. Nothing on this paragraph prohibits a person from selecting to carry out providers on the location of the hiring entity.
2. If work is carried out greater than six months after the efficient date of this part and the work is carried out in a jurisdiction that requires the person to have a enterprise license or enterprise tax registration, the person has the required enterprise license or enterprise tax registration with a view to present the providers underneath the contract, along with any required skilled licenses or permits for the person to apply of their career.
3. The person has the power to set or negotiate their very own charges for the providers carried out.
4. Exterior of undertaking completion dates and affordable enterprise hours, the person has the power to set the person’s personal hours.
5. The person is usually engaged in the identical sort of labor carried out underneath contract with one other hiring entity or holds themselves out to different potential clients as out there to carry out the identical sort of labor.
6. The person usually and often workouts discretion and impartial judgment within the efficiency of the providers.

As you may see, these elements overlap with the B2B impartial contractor exception in lots of cases. Relying on the circumstances, each impartial contractor exceptions might apply, necessitating separate analyses.

Borello Take a look at and impartial contractor exceptions

I’ve talked a bit in regards to the Borello Take a look at, and now I’ll clarify what it’s. The take a look at comes from a 1989 California Supreme Courtroom case entitled S. G. Borello & Sons, Inc. v. Division of Industrial Relations. The take a look at analyzes info round an organization’s relationship with a employee to find out if the employee is an worker. In contrast to the inflexible ABC Take a look at, the Borello take a look at weighs numerous elements. So if, say, one or two of the elements weren’t met, that will not essentially instantly mandate that an individual is an worker. Listed here are the elements – all THIRTEEN (!) of them:

1. Whether or not the employee performing providers holds themselves out as being engaged in an occupation or enterprise distinct from that of the employer;
2. Whether or not the work is a daily or integral a part of the employer’s enterprise;
3. Whether or not the employer or the employee provides the instrumentalities, instruments, and the place for the employee doing the work;
4. Whether or not the employee has invested within the enterprise, similar to within the tools or supplies required by their job;
5. Whether or not the service offered requires a particular ability;
6. The type of occupation, and whether or not the work is normally performed underneath the course of the employer or by a specialist with out supervision;
7. The employee’s alternative for revenue or loss relying on their managerial ability;
8. The size of time for which the providers are to be carried out;
9. The diploma of permanence of the working relationship;
10. The strategy of fee, whether or not by time or by the job;
11. Whether or not the employee hires their very own staff;
12. Whether or not the employer has a proper to fireside at will or whether or not a termination provides rise to an motion for breach of contract; and
13. Whether or not or not the employee and the potential employer consider they’re creating an employer-employee relationship (this can be related, however the authorized dedication of employment standing will not be based mostly on whether or not the events consider they’ve an employer-employee relationship).

As you may see once more, these items is difficult and there’s some degree of overlap with the weather of the B2B or skilled service impartial contractor exceptions I mentioned above. To completely decide whether or not somebody is or will not be worker requires quite a lot of elbow grease. In our expertise, this is usually a huge annoyance for California hashish companies – however much more so for firms coming into the state from different states or nations who should not used to California’s excessive employment legislation environment. And it’s excessive!

Going by way of a multi-factor impartial contractor exception evaluation every time an organization desires to fill a brand new function will not be straightforward and for some companies, not a financially viable possibility. Thankfully for a lot of hashish companies, good authorized counsel can analyze the problems shortly and assist firms set up polices to streamline the method when new contractors are engaged.

I ought to word that even when an employer goes by way of the above course of and may be very assured that it discovered a stable impartial contractor exception, they aren’t essentially immune from legal responsibility. Staff routinely sue for misclassification, even in some circumstances the place such claims haven’t any advantage. Going by way of the evaluation can’t make an organization bulletproof, however it might put together it to defend towards these claims. Within the coming days, I’ll discover extra points with classifying California hashish staff.