July 11, 2018
The California Supreme Court has tightened definitions on what constitutes an independent contractor, calling it the A-B-C test. Trust us, there’s nothing easy about these A-B-C’s. Kathy Eppright explains.
If you have workers who you pay as independent contractors, you need to learn the new rules that apply in California. The new standard for determining whether a worker is properly classified as an independent contractor was adopted by the California Supreme Court on April 30, 2018, in Dynamex Operations West v. Superior Court.
The new standard is called the “ABC Test,” and in order for a worker to be properly classified as an independent contractor under this test, the hiring entity must be able to establish all three of the following:
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 for the performance of such work and in fact;
B) That the worker performs work that is outside of 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.
A worker will be presumed to be an employee, and the burden will be on the hiring entity to establish that the above standard is met.
The court gave examples of what type of worker would meet the test, such as an outside plumber who is hired to come to a retail store to fix a leak in the bathroom. The court also gave examples of what type of worker would not meet the test, such as a cake decorator hired by a bakery to work on a regular basis on customer-designed cakes that the bakery sells.
Things may get even more difficult for companies using independent contractors who don’t meet the ABC Test. A petition for rehearing has been filed by Dynamex, asking the California Supreme Court to grant a hearing or modify its ruling to clarify whether the new test applies on a prospective basis only. If the court declines to clarify its decision, or if it issues a further opinion stating that the ABC Test applies retroactively, there will be an onslaught of lawsuits seeking up to four years of back pay and penalties for those workers who will be considered misclassified as independent contractors under the new standard.
There is still hope that the Governor and legislature in Sacramento will act to address the practical problems this decision will create for businesses that have traditionally classified certain professionals as independent contractors, such as doctors and financial advisors. A coalition of businesses and trade organizations sent a letter to Governor Brown on June 20, 2018.
Since a legislative solution is the only way to change or reverse the California Supreme Court’s decision, readers impacted should contact their representatives and share how this case will impact them and their businesses.