Diverging from decades-old precedent, the California Supreme Court in Dynamex announced a significant change in independent contractor law, adopting a strict three-prong test for determining whether an individual is an employee or an independent contractor under the state’s Industrial Work Commission Wage Orders (“Wage Orders). Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, 2018 Cal. LEXIS 3152 (Cal. Apr. 30, 2018).
Under the new standard, to establish that an individual is in fact an independent contractor, an employer must prove that:
- It does not control how the individual performs the work;
- The individual provides a service that is not part of the employer’s usual business; and
- The individual customarily engages in an established business, trade, or profession that is independent of the employer’s business.
The Court makes clear that the employer has the burden of proving all three elements listed above to establish that the individual is an independent contractor.
Background:
For nearly 30 years, California courts have applied what is known as the test for determining whether a worker is an independent contractor under the Wage Orders. This flexible, multi-prong approach primarily considered whether the hiring entity had a “right to control” the manner in which the worker performed the contracted service. The Borello test also included other “secondary” factors, such as whether the worker was engaged in a distinct occupation or business, the skill required in the particular occupation, and whether the worker or the hiring entity supplied the tools used to perform the work and the place where the work was performed.
ABC Test:
The Dynamex decision abolishes the Borello test, and concludes that the appropriate analysis for determining whether an employer-employee relationship exists is the “ABC Test” adopted by other state courts.
Under the ABC test, a worker is presumed to be an employee unless the worker:
(A) Is free from the employer’s control and direction;
(B) Performs a service that is either outside the usual course of the business for which such service is performed, or that such service is performed outside all of the places of business of the enterprise for which such service is performed; and
(C) Customarily engages in an independently established trade, occupation, profession, or business.
Coverage: Employers with employees in California
Effective: April 30, 2018
Action Required: California employers who have entered into work arrangements with individuals other than those who have traditionally been deemed independent contractors (e.g., electricians, plumbers, and HVAC professionals) should promptly and carefully review the status of these workers, particularly if the employer previously classified these individuals as employees. If this applies to you, you may wish to consult legal counsel for assistance with this analysis.
As always, please be sure to contact your HR Business Partner if you have any questions.