California Supreme Court establishes presumption of employment if ABC Test met for “independent contractors.”
Good news for “independent contractors,” but bad news for employers that classify their workers as independent contractors. The California Supreme Court’s landmark Dynamex ruling establishes a presumption that workers are employees if the employees can satisfy the new ABC Test, and places the burden on employers to rebut the presumption to establish an independent contractor relationship.
This is a big change for independent contractors subject to wage orders in California. The previous “right to control” test under Borello was more tedious and did not include a presumption of employment.
What is the ABC Test?
The ABC Test sets forth a simple three-part test to determine if a worker should be classified as an employee. As stated by the Supreme Court: “we conclude that unless the hiring entity establishes:
(A) that 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,
(B) that the worker performs work that is outside the usual course of the hiring entity’s business, and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business,
the worker should be considered an employee and the hiring business an employer under the suffer or permit to work standard in wage orders. The hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an included employee, rather than an excluded independent contractor, for purposes of the wage order.”
In sum, only if all three of the ABC prongs are met will the worker will be considered an independent contractor.
Explaining the ABCs
Part “A” is very similar to the “right of control” standard utilized in the past as one of many factors considered in determining the legal status of a worker. Now, the right to control the worker is not merely a factor to consider, but a requirement for the hiring company to establish in order to prove independent contractor status. A business can exert control over a worker by setting hours and quality standards, as well as mandating availability to customers.
Part “B” requires the business to establish that the worker provides services that are different than those provided by their own employees. The services provided must be incidental to, and not part of, the hiring entity’s core business.
Part “C” requires the business to prove how the worker has taken steps to create his or her own independent business. Evidence of the like might include a separate corporation or limited liability company created by the worker, the worker employing his or her own employees, and a list of the worker’s other clientele besides the hiring business.
How does this impact businesses in California?
All California businesses that either have existing independent contractor relationships or are contemplating entering into such relationships should speak to legal counsel regarding this decision and take immediate action to avoid costly and time-consuming litigation. Most businesses that employ independent contractors do so because it saves them money and time in complying with employment laws. Independent contractors are responsible for their own taxes and reporting, and generally are not given expensive employee benefits. They also are not required to clock-in and out, and therefore do not get paid overtime or receive legally mandated breaks.
Employers that have independent contracts should seek an opinion from their attorney as to whether they are properly classifying their workers under Dynamex. If they are not, it could lead to significant consequences under the new ruling.
How does this impact workers classified as independent contractors in California?
If you are working as an independent contractor but suspect that you should be classified as an employee, you should talk to a lawyer to determine whether you are properly classified. If you are being classified wrongfully, you may be entitled to significant back pay. You may also be entitled to significant benefits and protections (including worker’s compensation) that you would not be entitled to as an independent contractor. The Dynamex decision essentially presumes that a worker is an employee if the ABC test is met, so if you have any question as to whether or not you are properly classified as an independent contractor you should contact an attorney immediately.
CITES:
Dynamex Operations West v. Superior Court, No. S222732 (April 30, 2018)
S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341