California Supreme Court: Adopts Stringent “ABC” Test for Independent Contractor Status

PRO UnlimitedBy PRO Unlimited 3 weeks ago
Home  /  Industry Insights  /  California Supreme Court: Adopts Stringent “ABC” Test for Independent Contractor Status

On April 30, 2018, the California Supreme Court issued their much-anticipated decision in Dynamex Operations West, Inc. v. Superior Court, creating a significantly more stringent test for independent contractor (IC) status in California. In the unanimous decision, the Court adopted the “ABC” test for purposes of determining whether workers should be classified as employees or as ICs under California wage orders, which impose obligations on employers relating to minimum wage, overtime, meal and rest periods, hours of work, and other basic working conditions.

The Court held that one of the definitions of “employ” contained in the wage order—“to suffer or permit to work”—may be relied upon in evaluating whether a worker is an employee or independent contractor. In determining whether a worker is properly considered an independent contractor under this definition, the Court rejected the multi-factor test set forth in the seminal 1989 case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations. Instead, the Court adopted the Massachusetts version of the “ABC” test, recognized as among the most rigid employment status tests in the country.

Companies engaging workers in California now have the burden of proving that the worker meets each prong of a three-pronged test in order to treat the worker as an IC, including:

  1. that the worker is free from the control and direction of the hirer in connection with the performance of the work and in fact; and
  2. that the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.1

If a company fails to show that a worker satisfies each of the three criteria, the worker will need to be treated as an employee and not an IC for purposes of the California wage orders.

Takeaways 

With the issuance of the Dynamex decision, California now has one of the most rigid tests for IC status in the country. Many workers who would have qualified as ICs under the previous test may no longer do so under the Dynamex test. When engaging with individual ICs in California, businesses should carefully evaluate the engagements to determine whether workers should be classified as employees or ICs under the new framework of the ABC test.

In addition, while the Court claimed the ABC test will afford greater clarity in terms of which workers qualify as ICs, and provided a number of examples of these engagements,2 significant questions remain—in particular, with regard to the “outside the usual course of the hiring entity’s business” prong, and which engagements satisfy the prong.

Given the Dynamex decision’s significant implications for “Gig Economy” companies, many of whom have thriving businesses in California, we may see these industries seek legislative redress in the coming months.

PRO Unlimited is closely monitoring enforcement efforts and will provide updates as soon as any become available.

If you have any questions or would like to discuss this ruling in further detail, please contact PRO Unlimited at information@prounlimited.com

Disclaimer: The content in this blog post is for informational purposes only and cannot be construed as specific legal advice or as a substitute for legal advice. The blog post reflects the opinion of PRO Unlimited and is not to be construed as legal solutions and positions. Contact an attorney for specific advice and guidance for specific issues or questions.

  1. The wording of the ABC test varies somewhat across jurisdictions. Some versions permit a hiring party to satisfy part B of the test by establishing either that 1) the work provided is outside the usual course of the business for which the work is performed, or 2) the work performed is outside all places of business of the hiring entity. The Massachusetts, and now California, versions, however, permit the hiring party to satisfy part B only if it establishes that the work is outside its usual course of business.
  1. The examples discussed by the Dynamex Court are of limited usefulness in today’s workplace. The Court notes that outside plumbers and electricians hired by a retail store for discrete projects would not be found to be employees, while work-at-home seamstresses hired by a clothing manufacturer to make dresses from cloth and patterns supplied by the company would be, as would cake decorators hired on a regular basis by a bakery to work on its custom-designed cakes.
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