California Court Adopts New ‘ABC Test’ to Classify Independent Contractors

See Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, 2018 Cal.LEXIS 3152 (Cal.Apr. 30, 2018).

For nearly three decades, California courts have determined an individual’s status as an employee or independent contractor using a multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. That test asked “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” The Court in Borello identified several factors that informed the analysis, including the right of the employer to discharge the individual, the skill required for the particular position, the length of services, how the individual is paid, the intent of the parties, and several others factors.

But In Dynamex, the California Supreme Court reviewed the State’s Industrial Work Commission (IWC) wage orders and concluded a court may rely on the “suffer or permit to work” definition of “employ” contained in the wage order. Because of this, the California Supreme Court abandoned the Borello test and adopted the “ABC Test,” that is used by other states.

Under the “ABC Test” a worker is presumed to be an employee, unless:

1. The individual is free from the employer’s control and direction;
2. The Individual performs work that is outside the usual course of the employer’s business; and
3. The Individual customarily engages in an independently established trade, occupation, profession, or business of the same nature as that involved in the work performed.

The California Supreme Court held that the now-obsolete multi-factor test “makes it difficult for both hiring businesses and workers to determine in advance how a particular category of workers will be classified, frequently leave the ultimate employee or independent contractor determination to a subsequent and often considerably delayed judicial decision.

What This Means for California Employers

This new independent contractor classification test in effect in California presumes from the outset that workers are employees subject to the requirements of the IWC wage orders – with correct classification as an independent contractor as the more difficult classification to prove by satisfying the “ABC Test.

Further, the “ABC Test” is more difficult to satisfy than the old “control” standard. Employers who use independent contractors should immediately review both the contracts and the day-to-day realities of those individuals’ work and relationships with the company to ensure that they satisfy the newly-enacted “ABC Test” and, thus, are correctly classified.