California Independent Contractors May Become Employees Under the “ABC Test”

    This week, the California Supreme Court made it more difficult for many employers to lawfully classify workers as independent contractors under California wage-and-hour law. In Dynamex Operations West, Inc.,FN1 the court adopted the so-called “ABC” independent contractor test, which presumes workers are employees unless employers can show:

    A.     that the worker is free from actual and contractual control and direction of the hiring company in connection with the performance of work;

    B.     that the worker performs work that is outside the usual course of the hiring company’s business; and

    C.     that the worker is customarily engaged in an independently established trade, occupation or business that is the same nature of the work he or she is performing for the hiring company.FN2

    The court provided examples of who may be considered an independent contractor under the ABC test. On the one hand, a plumber hired by a retail store to repair a bathroom leak or an outside electrician hired by a retail establishment to install a new line likely are independent contractors under the rule. On the other hand, a work-at-home seamstress who contracts with an outside company to make clothes from patterns and materials supplied by that company, and a cake decorator who works on custom cakes for a bakery on a regular basis likely will not be considered independent contractors under the ABC test. FN3

Practical Effects of Decision

    States and government agencies use a variety of different tests to determine whether workers are properly classified as independent contractors. The ABC test adopted by the California Supreme Court for wage and hour issues is among the least flexible, particularly for gig economy businesses who rely heavily on an independent contractor business model.

    California businesses that engage independent contractors for some aspect of their work, and all businesses who engage California independent contractors to perform work remotely are potentially impacted by the Dynamex decision. Such businesses are encouraged to contact their employment attorneys to assess the nature of the contractor relationship.

Footnotes:

FN1:    Dynamex Operations West, Inc. v. Superior Court, S222732, 2018 WL 1999120 (Cal. Apr. 30, 2018). The California Supreme Court’s April 30, 2018 decision upholds the trial court’s certification of a class action for a subset of delivery service drivers.

FN2:    Dynamex, 2018 WL 1999120, at *4 (applying ABC test to determine employee/contractor status under wage order that defines “employ” to mean “suffer or permit to work”). Massachusetts, New Jersey, and Delaware have also adopted versions of the ABC test. See id. at *29 n.23. See M.G.L.A. c. 149 §§ 148, 148B; 19 Del. C. § 3302(10)(K); N.J. Stat. Ann. § 43:21-19(i)(6). Previously, the California Supreme Court had applied a multi-factor test that considered, among other things, the level of control exerted over the worker, the skill required in the work, who supplies the instrumentalities and tools of work, and whether the parties believe they are creating an independent contractor relationship. S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 769 P.2d 399, 405 (Cal. 1989); Valadez v. CSX Intermodal Terminals, Inc., No. 15-cv-05433, 2018 WL 1510083, at *12 (N.D. Cal. Mar. 27, 2018) (applying Borello factors).

FN3:    Dynamex, 2018 WL 1999120, at *31.