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Independent Contractorsí ABC Test: Summary

By: Alexis James, Esq., WorkWise Law, PC

One of the most commonly asked questions by our clients, and most employers, is whether their independent contractors are properly classified. Up until now, we have always explained that there is no black and white answer; rather, we would walk employers through a complicated multi-factor, fact specific test to determine whether the worker is an independent contractor or an employee. This has always been one of the more nebulous areas of employment law. And the consequences of misclassifying can be substantial- the Labor Board is known for handing out large penalties for classifying workers improperly. 

On Monday April 30th, the California Supreme Court issued a ruling in Dynamex Operations West Inc. v. Superior Court - that helps navigate through the fog by setting forth a much clearer 3-part test to make this determination. Pursuant to this ruling, the court now PRESUMES that the worker is an employee.  To classify a worker as an independent contractor, you must satisfy the new "ABC test": 

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; and

(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 for the hiring entity.

In simple terms, Part A means that the contractor cannot be controlled by the hiring entity, (i.e. the hirer cannot direct the workers'  hours, or how they get the work done, or give them policies to adhere to, much like they would give an employee). If the hiring entity has oversight for how the work gets done, the worker is most likely an employee.

Part B, which is the part of the test that is now most problematic for employers, is that if the worker performs work that is similar to what the hiring entity does, the worker is an employee, not a contractor.  For example, if a contractor uses framers to complete a project, and the contractor holds itself out to the public as doing general construction, then the framers would be employees, not contractors. 

Part C, implies that the work done for the hiring entity is part of a trade, occupation or business that is typically independent.  For example, plumbers typically are not part of a doctor's office.  If they are hired to clear a drain at the doctor's office, the work done is typically independent of the medical practice, and therefore, would satisfy this part of the test. 

To justify independent contractor status, you must satisfy all 3 factors; it is an "AND" test, not "OR."   It is going to be difficult, without further clarification from the courts, to continue treating workers as contractors.  What this means, is that employers must now pay Social Security and payroll taxes, provide workers' compensation insurance, and comply with CA and federal statutes regarding wages, hours and working conditions.  To convert contractors to employees properly, you should consult legal counsel and your insurance company to obtain proper coverage.   We can guide you through the steps to bring peace of mind and reduce your costs for misclassification.

If you have any concerns as to whether your workers are properly classified, please feel free to reach out to the lawyers at WorkWise Law, PC at (818) 591-6724

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