- California's Supreme Court on April 30 adopted a test for independent contractors that generally assumes workers are employees (Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, No. S222732).
- The so-called ABC test, according to the court, allows a worker to be properly classified as an independent contractor (if no state wage order applies) only if the hiring entity establishes: (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 such 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 for the hiring entity.
- The ABC test presumptively considers all workers to be employees, the Court said, and permits workers to be classified as independent contractors only if all three prongs of the test are satisfied.
The Dynamex ruling was largely unexpected and puts an end to a more relaxed independent contractor test that employers in California used for decades. Under the old "Borello" standard, the primary consideration in such decisions was whether the company had the right to control the manner and means by which the worker performs the work, Paul Hastings attorneys previously wrote for the firm. The standard also considered factors like the degree of skill required to perform the work, the method of payment and the nature of the company’s regular business, they said.
In light of the new ruling, "entities doing business in California that treat some workers as independent contractors will want to review their relationship under the 'ABC test' to determine whether any or all such workers should be reclassified," recommended Epstein Becker Green attorneys in a blog post.
The ruling comes as employers across the country are grappling with the increased risks that came with the freelancing boom, and it may well throw a wrench into the talent plans of some California employers.
The state was shaping up to be a proving ground for gig economy questions and a recent ruling involving GrubHub — resolved in the employer's favor — was said to provide employers with a roadmap for classification. But things appear to be shifting back now, and the plaintiff's attorney from the GrubHub case told The New York Times that she would seek reconsideration in light of Dynamex.
The ruling could also end the truck driver misclassification debate: because the rules for what makes an employee or an independent contractor are more clearly defined, making it harder for trucking companies to take advantage of drivers.
That's good for drivers, and could provide some relief to the trucking industry struggling to retain dissatisfied drivers in a rapidly expanding freight market.