California Supreme Court adopts ABC test for independent contractors
The new test is more stringent and straightforward than previous standards.
The question whether someone performing services is an employee of the entity benefiting from the services, or whether instead the person is an independent contractor, is an important one for both parties. If the person is an employee, the employer has responsibilities regarding taxation, workers’ compensation, unemployment compensation, wage-and-hour issues like overtime and more.
If the person is an independent contractor performing services essentially under a business or service contract with no employment relationship, the “employer” has far fewer responsibilities toward the worker and normally comes out ahead financially.
For this reason, some employers try to classify service providers as independent contractors if they can to avoid the legal and financial responsibilities of employment. There are legitimate reasons to “hire” independent contractors, but an employer must take care not to overreach for the benefits of doing so. If the person really is an employee, those responsibilities are also legitimate under state and federal law.
Because of this tension, getting legal advice from an experienced employment lawyer is important for both employers and employees. An attorney can educate the employer so it understands how to properly classify people as well as employer responsibilities toward employees and toward contractors.
On the other side, if a person questions whether a hiring entity has properly classified him or her, the worker should consult an employment lawyer. Misclassification could result in loss of significant benefit.
California Supreme Court settles questions
On April 30, 2018, the California Supreme Court announced a new test to determine whether a worker is an employee or an independent contractor: the ABC test. In Dynamex Operations West, Inc., v. Superior Court, the court looked at the question under California state laws and rules, called wage orders. The answer to the question under state law impacts issues like minimum wage, maximum hour limits, required breaks and more.
Here, the question was whether delivery drivers for Dynamex, a delivery company, were properly independent contractors or employees. In 2004, the company changed the classification of its drivers from employee to independent contractor.
The court harkened back to the traditional view of an independent contractor, a category of people working in their own independent businesses and trades like independent plumbers or electricians that provided such services (usually occasionally) to employers. Those kinds of services were clearly understood to be contractual and not part of an employment relationship.
The court adopted the ABC test, which is used in some other states, as a more straightforward way to answer the question. Under this standard, the law presumes a worker is an employee, unless the employer can show three things:
- The hiring entity does not exercise “control and direction” of the work.
- The work performed is outside of the normal kind of work the hiring entity engages in.
- The work performed is the type the worker usually performs in his or her own independent “trade, occupation, or business.”
Employers, employment lawyers and employees will watch with interest to see how courts apply the ABC test throughout the state as this issue continues to evolve.
The employment lawyers at Bononi Law Group, LLP, in Pasadena, represent employees and employers across Southern California in many employment law matters, including those involving classification issues.