Recently, the California Supreme Court issued a landmark decision in the case of Dynamex Operations West v. Superior Court. The Dynamex court chose to essentially scrap the nearly 30-year old test used by California courts for determining whether a hired worker is regarded as an employee under the law, or instead of such worker is merely an independent contractor. This has dramatic effects for whether or not the worker has protections or may be claims under California’s Wage Orders and Labor Code.
In replacing the decades-old “Borello control test,” which applied multiple factors to the determination of whether a worker qualifies as an independent contractor, the Dynamex Court instead adopted a much-simplified “ABC Test” which has been applied in various other jurisdictions around the country, including New Jersey and Massachusetts.
The revised “ABC” standard adopted by the Dynamex Court is summarized as follows:
First, the California Supreme Court interpreted California’s wage precedents and policy as placing the burden on the business to prove that a worker is an independent contractor, rather than placing the burden on the worker to prove he or she is an employee. As a general matter, the worker will be presumed to be an employee.
Instead, to meet its burden under the ABC Test, a business must now establish each of the three ABC factors:
(1) 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;
(2) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(3) that the worker is customarily engaged in an independently established trade, occupation, or business.
Under the ABC Test, the failure of a business to establish any one of the three factors means that a worker will be determined to be an employee and not an independent contractor as a matter of law.
The Court’s ruling specifically applies to claims stemming from California’s Wage Orders, and the Court technically left open whether this test would also apply to other statutes, such as those governing claims for failure to pay workers’ business expenses (for example, under Labor Code section 2802). However, given the close overlap and interplay between California’s Wage Orders and its Labor Code provisions, it is likely that courts within the State will find the ABC test applicable to all such claims.
The ABC Test is far broader in its reach than the old Borello test, purposefully so the Supreme Court stated, and will likely result in many more workers being unable to meet the requisite test to be classified as an independent contractor. For example, in many, many circumstances, it will be extremely difficult for a business to establish requirement “2” of the ABC Test, which mandates that in order to be considered an independent contractor, a worker must “perform work that is outside the usual course of the hiring entity’s business.”
To illustrate the meaning of the “usual course of business,” the Supreme Court gave the example that “when a retail store hires an outside plumber to repair a leak in a bathroom on its premises or hires an outside electrician to install a new electrical line, the services of the plumber or electrician are not part of the store’s usual course of business and the store would not reasonably be seen as having “suffered or permitted” (the California law definition of employment) the plumber or electrician to be working as its employee.
“On the other hand,” the Court said, “when a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company,” or “when a bakery hires cake decorators to work on a regular basis on its custom-designed cakes,” the workers are part of the hiring entity’s usual business operation and the hiring business can reasonably be viewed as having suffered or permitted the workers to provide services as employees” and not as independent contractors.
Misclassification claims held by workers can be extremely valuable, because related entitlements to overtime, unemployment insurance, social security, taxes, and other categories, can end up owed to the worker. Workers unsure of whether they have been misclassified as “independent contractors” should contact Palay Hefelfinger APC today for a free consultation to discuss their rights.