With companies increasingly turning to social media to meet their advertising needs, employers must take a closer look at how they classify social media consultants and freelancers. Although larger companies may have internal social media departments, many small companies contract outside social media consultants who work on an hourly basis. Typically, companies were able to classify these social media consultants as independent contractors provided that the consultant had the right to control the manner and means of their work.
Last year, in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, the California Supreme Court threw out this standard in favor of a new, more strict test called the “ABC test.” The “ABC test” makes it significantly more difficult for a business to classify their workers as independent contractors. In order to classify a worker as an independent contractor, a company must prove that:
(A) the worker is free from the control of the company in connection with work performance;
(B) the worker performs work outside the company’s usual business; and
(C) the worker is engaged in an independent business of the same nature as the work performed.
The key factor in the ABC test is factor (B)—that a worker does not provide services that are part of the company’s core business. Because this new test applies to all hourly workers, classifying a worker who performs tasks related to a company’s usual business as an independent contractor is unlikely to survive judicial scrutiny.
In May of 2019, a Ninth Circuit ruling and an opinion letter from the California Division of Labor (“DLSE”) made classifying consultants as independent contractors even more difficult. The Ninth Circuit applied the ABC test retroactively to all wage-and-hour cases, and the DLSE opined that the test applies to all claims made under the California labor code. If the courts follow the DLSE guidance, the ABC test will now apply to all lawsuits for failure to provide (1) meal and rest breaks, (2) overtime, (3) minimum wage, and (4) reimbursement of expenses, among others.
Companies using social media consultants in California must carefully re-assess how they classify those consultants. For example, although a retail company or service provider may not technically be in the business of advertising or public relations, it is difficult to argue that those pursuits are not part of their usual business. Advertising is key to selling products and attracting customers. Thus a court may find that social media consultants are performing work that is part of the company’s core business, and must be classified as employees rather than independent contractors.
These recent decisions from the courts, as well as the California DLSE, drive home the fact that classifying hourly workers as independent contractors poses a major liability risk to employers. Although companies will incur additional costs by providing the legally mandated benefits regular employees are entitled to, they will also avoid costly legal fees and judgments resulting from potential wage and hour lawsuits. Companies should carefully balance these costs when determining how to classify their social media consultants.