Independent Contractor vs. Employee—Easy as A, B, C?

by Lee Miller and Ilana Kaufman | July 29, 2018 6:09 pm

In April of this year, the California Supreme Court handed down its much anticipated opinion in Dynamex Operations West, Inc. v. Superior Court, an opinion that clarifies when workers in California should be classified as employees or as independent contractors.

The Old “Borello” Test

Prior to the California Supreme Court’s ruling in Dynamex, the Borello test prevailed. Under the Borello “economic realities test,” courts first evaluated whether the person to whom service is rendered has the right to control the manner and means of accomplishing the results desired. Then, a number of additional factors are taken into consideration, none of which are dispositive on its own, but all of which are evaluated in the totality of the circumstances. These factors generally included:

  1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
  2. Whether or not the work is a part of the regular business of the principal or alleged employer;
  3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
  4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
  5. Whether the service rendered requires a special skill;
  6. 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;
  7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
  8. The length of time for which the services are to be performed;
  9. The degree of permanence of the working relationship;
  10. The method of payment, whether by time or by the job; and
  11. Whether or not the parties believe they are creating an employer-employee relationship.

The New “ABC” Test

The Supreme Court in Dynamex reevaluated the multi-factor Borello test, and as a result there is a new, three-factor “ABC” test used when evaluating whether a worker has been properly classified as an independent contractor. The Court held that the analysis begins with the rebuttable presumption that a worker is an employee and that an entity classifying a worker as an independent contractor bears the burden of rebutting the presumption by establishing each of the following three factors:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(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.

Failure to satisfy any of the three factors of the ABC test results in a finding that the worker is an employee and not an independent contractor.

What This Means for Hiring Entities

The new ABC Test provides a more rigid framework for compliance and less flexibility in the “grey” areas. As a result, hiring entities should be cautious when classifying workers as independent contractors to ensure that the worker’s classification will satisfy the ABC test. Hiring entities are encouraged to seek the advice of experienced legal counsel whenever classifying certain workers as independent contractors.

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