Re-Learning The ABCs: Your Independent Contractor Now May Be An Employee
The California Supreme Court just made it harder for employers to classify workers as independent contractors. In Dynamex Operations West v. Superior Court, the state’s highest court adopted a new test to use when determining whether a worker is an employee or independent contractor under California’s Wage Orders, which contain the minimum wage, overtime, and meal and rest-break requirements, among others.
Historically, California courts have used a multi-factor test in determining a worker’s status for purposes of the Wage Orders. Those so-called Borello factors considered a worker’s investment in tools and equipment, the parties’ intentions of the relationship, whether the worker had his own business, and the method of payment.
In a departure from that historic test, the high court announced that the “ABC test” now would be used to determine a worker’s classification under California’s Wage Orders. Under this test, there is a presumption that a worker is an employee, and the burden is on the employer to refute that presumption and show that the worker is an independent contractor. To meet this new burden, the employer must establish each of the following three factors, the “ABC test”:
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 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 of the same nature as the work performed.
The court acknowledged that this test will make it harder for employers to classify workers as independent contractors, indicating that an individual should be denied employee status “only if the worker is the type of traditional independent contractor – such as an independent plumber or electrician – who would not reasonably have been viewed as working in the hiring business.”
The court’s opinion left open the question of whether the Borello test remains viable for claims brought outside the Wage Orders, such as for workers’ compensation or tax purposes, which could open the possibility and complexity of companies classifying individual workers in different ways for different purposes.
Contact your SFSS&W attorney if you have any questions about the strict new standard for classifying workers as employees or independent contractors, or any other labor and employment law matters.
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