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California Supreme Court Applies “ABC” Test to Determine Whether Workers are Employees or Inedependent Contractors

Earlier this year, in the case of Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court rejected the “all circumstance” standard, and held that the “ABC” test is to be used to determine whether workers are employees or independent contractors.  Under the suffer or permit to work standard in California’s wage orders, an individual worker who has been hired by a company can properly be treated as an independent contractor only if the worker is the type of traditional independent contractor who would not reasonably be viewed as working in the hiring business. 

To establish independent contractor status under the ABC test, the hiring entity has the burden to prove each of three factors:  (A) that the worker is free from the control and direction of the hirer 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 of the same nature as the work performed.  

Under the “A” factor, a worker is treated as an employee where the hiring entity exerts the type and degree of control over the work performed that is typically exercised over employees.  Under the “B” factor, the focus is on whether the worker’s services typically would be viewed as within the usual course of the hirer’s business.  In this light, the Supreme Court referenced a retail store that hires an outside plumber to repair a leak (independent contractor) as opposed to a clothing manufacturer that retained work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that would be sold by the company (employees).  Under the “C” factor, the issue is whether there is a truly independent business being operated by the worker, as opposed to the worker doing the hirer’s work under the artificial label of independent contractor. 

The opinion is designed to protect workers from being exploited by hirers who misclassify them as independent contractors in order to circumvent the requirements of California’s wage orders for employees.  On the other hand, the opinion greatly restricts, if not eliminates, the ability of workers who wish for flexible hours and working conditions to work in their own field as independent contractors.

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