California Supreme Court Adopts “ABC Test” for Independent Contractor Status

Category: Client Update
Date: Jun 11, 2018 05:59 PM

The California Supreme Court established a new, worker friendly test to determine whether a person should be classified as an independent contractor or employee.  This test applies to California’s Industrial Welfare Commission (IWC) Wage Orders which regulate wages, hours, and working conditions.

Under the new “ABC Test,” a person qualifies as an independent contractor to whom the wage orders do not apply, only if the employer proves all three of the following:

A) that the person is free from the control and direction of the hirer/contracting agency in connection with the performance of the work, both under the contract terms and in fact;

B) that the person performs work that is outside the usual course of the hiring entity’s business; and

C) that the person is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

An employer who cannot establish all three factors must treat that person as an employee and not an independent contractor for purposes of the IWC Wage Orders.

Although public sector employers are not governed by most parts of IWC Wage Order number 4 (Professional, Technical, Clerical or Mechanical Occupations), public sector employees are entitled to the following benefits under the Wage Orders:  to be paid minimum wage; receive split shift pay; and receive the benefits of the meals and lodging limitations.  For public sector employers who provide public transportation services under IWC Wage Order number 9 (Transportation Industry), public sector employees are entitled to be paid minimum wage, split shift pay, receive the benefits of the meals and lodging limitations, and receive rest and meal breaks (in most instances).

Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903.

Note:

Although this decision applies only to the IWC Wage Orders, there will undoubtedly be efforts to extend the ABC Test to other areas of California law, such as California’s anti-discrimination and leave laws.  As a result, now is a good time to review whether the persons your agency contracts with qualify as independent contractors under the ABC Test.  LCW is available to assist agencies in that effort. A more in-depth discussion of the Dynamex decision is available here: https://www.calpublicagencylaboremploymentblog.com/wage-and-hour-2/california-supreme-court-adopts-new-abc-test-for-classification-of-independent-contractors-potential-risk-and-impact-on-public-agencies/

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