The California Supreme Court has made it more difficult to classify workers as independent contractors. Businesses now have the burden of establishing the classification of their workers by applying the “ABC Test” if they want to prove the workers to be independent contractors and not employees.
This case involves delivery drivers who sued Dynamex Operations West (Dynamex), a nationwide package and document delivery company, for misclassifying drivers as independent contractors. The drivers made wage and hour claims based on their alleged misclassification. Additionally, Dynamex was accused of unlawful business practices under California Business and Professions Code section 17200.
The Court held that the business entity classifying an individual as an independent contractor now has the burden of establishing that such a classification meets all requirements under the “ABC Test.” The business entity must prove each of the following three factors:
(A) 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 for the performance of the work and in fact. The Court explained that this prong evaluates the type and degree of control a business typically exercises over employees.
(B) The worker performs work that is outside the usual course of business of the hiring entity’s business. This criterion will be met if the worker’s services are not provided within the usual course of business of the hiring business entity. For example, a retail store who hires a plumber to fix a leak.
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The final criterion is determined by whether the worker is in business for herself and provides a service that is independent from the hiring entity’s business. This individual would take steps to establish and promote her own independent business. An example given by the court is an individual, through incorporation, licensure and advertisements, offering to provide the services of her independent business to the public or to potential customers.
If the business entity cannot establish all three criteria of the “ABC Test,” the worker must be classified as an employee.
The impact of this new test on businesses that were misclassifying their workers as independent contractors is unclear. The “ABC Test” appears to replace the Borello test (S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341). In October, 2018, the California Court of Appeal, in Garcia v. Border Transportation Group, LLC (2018) 28 Cal.App.5th 558, confirmed that the “ABC Test “ will be applied only for wage order purposes, and the less stringent Borello test for determining whether a worker is an employee or an independent contractor will continue to be applied to any and all non-wage-order claims.
For a copy of the complete decision, see: Dynamex Operations W v Superior Court