New court decision makes independent contractor criteria stricter

The Supreme Court of California recently ruled that employers must ask themselves three questions as part of an “ABC” test to determine whether someone working for the company should be classified as an employee or an independent contractor. Dentists in California should be aware of the new guidelines as they are more narrow than what dentists may have been used to in the past.

As of May 1, workers in California can now only be considered independent contractors if the employer can establish that all of the following factors are true:

A. The worker is free from control and direction over performance of the work, both under the contract and in fact.

B. The work provided is outside the usual course of the business for which the work is performed.

C. The worker is customarily engaged in an independently established trade, occupation or business (hence the ABC standard). 

Factor B in the ABC test essentially means that any professional performing dentistry in a dental practice most likely should not be considered an independent contractor. This applies to specialists and hygienists as well. Therefore, the workers who may be classified as independent contractors under this new decision are, but are not limited to, janitors, electricians and billing and human resources professionals, as these are professionals who are not performing dentistry.

If a dentist owner has workers classified as independent contractors who are practicing dentistry and do not meet all three of the new criteria, they could be subject to penalties, potential administrative actions and lawsuits. Misclassification of an employee creates a potential liability for employment taxes and penalties and liability for failure to fulfill the many legal obligations owed to an employee, such as unpaid overtime or meal- and rest-break violations. If a worker has been classified as an independent contractor in the past and they do not meet all three criteria of the new ABC test, then they may need to be reclassified as an employee and receive the benefits of an employee, e.g., workers' compensation and sick leave.

The new case is a reminder that the classification of an individual as an independent contractor is largely dependent on federal and state tests, not an employer’s desire to reduce administrative burdens or payroll costs. The standards for determining whether an individual is an independent contractor or an employee are different under federal and state laws depending on the purpose of the analysis. Dentist owners should assume that all workers are employees unless they clearly meet all legal requirements and pass all the various state and federal tests that are used by agencies to determine independent contractor status.

For employers who are still uncertain about how to classify an employee or how to change a classification from independent contractor to employee, CDA Practice Support recommends speaking with legal counsel.

For more information, contact CDA Practice Support at 800.232.7645 or TDIC Risk Management at 800.733.0633.

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