California Supreme Court Gives Employers the ABCs Of How To Determine Independent Contractor Status
Posted May 1, 2018

In Dynamex Operations West Inc. v. Superior Court (2018), the California Supreme Court added alphabet soup to the already murky independent contractor misclassification waters by adopting a version of the “ABC test” used in other jurisdictions.

The key issue the Court was asked to decide in Dynamex was which test to apply in a wage and hour class action alleging that the plaintiffs had been misclassified as independent contractors. The Court was presented with two options: (1) the broader wage order definition of “to employ” as construed in Martinez v. Combs (2010) 49 Cal.4th 35, 64 (Martinez); or (2) the narrower Borello test (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello). The Court, while adopting the broader wage order “suffer or permit” employee standard, opted for Door Number 3, and adopted the ABC test.

The ABC test states that a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes three criteria:

A. 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 such work and in fact; AND
B. the worker performs work that is outside the usual course of the hiring entity’s business; AND
C. the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. This is the correct test under the “suffer or permit to work standard,” which is one of three definitions of “to employ” in the wage orders at issue in Martinez.

Why another test? The Supreme Court now views the appropriate test of whether a worker is an independent contractor or an employee through the lens of the historical perspective of the statutory purpose. The Court makes no excuses for adopting the ABC test and casting aside the Borello test in the wage and hour context, noting that when different statutory schemes have been enacted for different purposes, it is possible that a worker may properly be considered an employee with reference to one statute and not another. Through its new historical lens, the Dynamex court also pointed out the disadvantages of the multifactor Borello test, especially in the wage and hour context. To name a few, the numerous factors permit a hiring entity greater opportunity to evade its fundamental responsibilities under wage and hour laws, make it difficult to determine in advance how a particular category of workers will be classified, and are complicated.

In contrast, according to the Court, the “ABC” test, is as easy as, well “A,” “B,” and “C.” The Court squarely placed the burden of proof on the hiring entity to prove each of the three factors of the ABC test. The failure to prove any one of the three is sufficient in itself to establish that the worker is an employee, rather than an independent contractor, for purposes of the wage order.

Even before the California Supreme Court rendered its decision in Dynamex, LightGabler attorneys have routinely counseled employers about the dangers of misclassifying workers as independent contractors, particularly where that worker was to be part of the hiring entity’s usual business operations. Now, more than ever, employers are strongly cautioned to consult with counsel of record to make employee versus independent contractor decisions, as we expect this case, and the new more employee-friendly ABC test, to spur misclassification litigation. Ultimately, the burden will fall squarely on employers to prove not only that the at-issue worker is an independent contractor who was not intended to be included within the wage order’s coverage, but also that each prong of the ABC test weighs in favor of independent contractor status.

LightGabler is an employment defense firm working with employers and management to proactively prevent litigation, and it has a number of employment attorneys dedicated to providing wage and hour advice to a broad range of clients in numerous industries. If you have any questions regarding misclassification or this opinion, please call LightGabler at 805-248-7208.