New Independent Contractors Classification Rules
The California Supreme Court adopted a new test for distinguishing employees from independent contractors in April of this year. The “ABC test,” as it is characterized in the Supreme Court’s decision, will have the effect of expanding the number of workers who were once classified as independent contractors as employees. However, it is important to note that the newly enacted standard does not apply to cases before the Workers Compensation Appeals Board . . .yet.
In Dynamex Operations West, Inc. v. Superior Court, the Court laid out the new standard applicable to wage and hour claims before the California Labor Commissioner. The ABC test requires employers to show that (a) a worker is free from its control and direction, (b) performs work that is outside of the usual course of a hiring entity’s business and (c) is engaged in an independently established trade, occupation or business in order to be considered an independent contractor. The test is simpler and more inclusive than the Borello test which California businesses and the Workers Compensation Appeals Board have relied upon since 1989.
Under Borello the primary test is that of control over the manner and means of accomplishing the result desired but also requires consideration of the following nine additional factors: “(1) right to discharge at will, without cause; (2) whether the one performing the services is engaged in a distinct occupation or business; (3) the kind of occupation, with reference to whether in the locality the work is usually done under the direction of the principal or by a specialist without supervision; (4) the skill required in the particular occupation; (5) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (6) the length of time for which the services are to be performed; (7) method of payment, whether by the time or by the job; (8) whether or not the work is part of the regular business of the principal; and (9) whether or not the parties believe they are creating the relationship of employer-employee.”
One of the advantages of the ABC test is that it is simpler to apply. In order to establish that a worker is an independent contractor under the ABC standard the hiring entity is required to establish the existence of all three parts of the ABC standard. The Court observed that another advantage of the ABC test is increased clarity and consistency. Under Borello one could try nearly identical cases with an over-the-road trucker and get completely different results. In contrast the ABC test has fewer requirements but the need for all three elements to align gathers many more workers under the term “employment”. In fact, those changes will result in a significant increase of “employees” in the construction, trucking, home health care and “gig” or “on demand” business models.
The Court went on to explain that the outcome of an employee versus independent contractor question may be decided differently depending upon which forum is applying the standard. They justified this result by emphasizing that California is not alone is adopting a distinct standard that provides broader coverage of workers with regard to the very fundamental protections afforded by wage and hour laws and wage orders; like California wage orders. It is likely that the WCAB will at some point consider the use of the ABC test given the similar fundamental importance of workers’ compensation benefits for workers in the State. Until then, practitioners and adjusters in the workers compensation community still have the nine factor test plus “control” to rely upon.
If you have questions concerning this or any other issue affecting employment or workers’ compensation cases feel free to call or email with your questions.