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California Supreme Court Announces New “ABC” Test for Independent Contractors

The California Supreme Court recently announced a substantially stricter new test for determining whether a worker qualifies as an independent contractor: the “ABC” test. In a unanimous decision in Dynamex v. Superior Court, issued on April 30, 2018, the Supreme Court considered whether Dynamex Operations West, Inc. (“Dynamex”), a nationwide package and document delivery company, was misclassifying its delivery drivers as independent contractors.

Prior to 2004, Dynamex classified its drivers as employees and paid them accordingly. However, in 2004, perhaps attempting to implement a gig-economy business model, Dynamex adopted a new policy making these same drivers independent contractors.

In its ruling, the Court rejected the prior test created by the California Supreme Court nearly 30 years ago in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341(1989). TheBorello Test is a multi-factor balancing test, whose primary factor is whether the hiring entity retains the right to control the manner and means by which the work is performed. The Borello Test also has nine secondary factors, including whether the work is part of the hiring entity’s regular business.

The Dynamex Court rejected the Borello Test in favor of the so-called “ABC” Test, under which a worker is presumed to be an employee, and this presumption is rebuttable only if the hiring entity can show:

  • (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 the work 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.

If a hiring business cannot meet all three prongs of the ABC Test, the worker is an employee, not an independent contractor, and is therefore subject to all California and federal wage and hour laws.

The Court’s adoption of the stringent ABC Test reads like a warning to companies that have up until now successfully circumvented California’s wage and hour laws by classifying their core employees as independent contractors. Plaintiffs’ attorneys have already seized on the new test, with counsel for workers suing Grubhub and Lyft, arguing that the Dynamex decision should apply retroactively to their cases. It remains to be seen how the ABC Test will affect such companies going forward.

If you would like more information on what the new ABC Test means for your company, please contact the attorneys of Hunt Ortmann’s Employment Law Group.

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