Determining whether a California worker is an independent contractor or an employee has never been an exact science, with a lot riding on correct classification. But the California Supreme Court recently tried to simplify the issue by adopting a new “ABC” test for California, at least for claims under the IWC Wage Orders for minimum wage, overtime pay, and meal and rest period violations.
In Dynamex Operations W., Inc. v Superior Court (2018) 4 C5th 903, the plaintiffs were delivery drivers who filed a class action claiming that Dynamex had misclassified them as independent contractors.
The supreme court agreed. It found that under the “suffer or permit to work” definition of “employ” found in the Wage Orders, a worker is presumed to be an employee and the hiring business must satisfy all three prongs of the ABC test to overcome that presumption. Specifically, the hiring business must show:
(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact. (This is similar to the test in S.G. Borello & Sons, Inc. v Department of Indus. Rel. (1989) 48 C3d 341 that was used in the past.)
(B) The worker performs work that’s outside the usual course of the hiring entity’s business. (So if you’re a driver for a ride service or a delivery person for a delivery service, you can’t be an independent contractor no matter how little control the company has over you.)
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. (The court will look at such things as whether the worker’s business is incorporated or licensed, whether it’s advertised, and whether it offers services to the public or other potential customers.)
Although some have accused the court of ignoring the realities of the gig economy, the ABC test is already used in other jurisdictions, and in the court’s view, “will provide greater clarity and consistency, and less opportunity for manipulation, than a test or standard that invariably requires the consideration and weighing of a significant number of disparate factors on a case-by-case basis.” 4 C5th at 964.
One question was left open by the court: Will the ABC test apply to workers claiming Labor Code violations that aren’t related to the Wage Orders? Time will tell.
In the meantime, employers should review their own hiring and classification practices. Many workers who were previously considered independent contractors will now have to be treated as employees.
For guidance in this area, turn to CEB’s Drafting Employment Documents for California Employers, chap 4 and the Action Guide, Working with Independent Contractors, Leased Workers, and Outsourcing. Both of these titles are part of CEB’s OnLAW Employment Law Library.
Other CEBblog™ posts you may find useful:
- The Pros and Cons of Using Independent Contractors
- Employees on Lease
- What CA Employers Need to Know About Using Foreign Labor Contractors
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