On April 30, 2018, the California Supreme Court issued its long-awaited opinion in Dynamex Operations West, Inc. v. Superior Court, clarifying the standard for determining whether workers in California should be classified as employees or as independent contractors for purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”).
The Court held that there is a presumption that individuals are employees, and that an entity classifying an individual as an independent contractor bears the burden of establishing that such a classification is proper under the “ABC test” used in some other jurisdictions.
To meet this burden, the hiring entity must establish each of the following three factors, commonly known as the “ABC Test”:
(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.
Fail just one part, and the worker is an employee under California wage and hour law. This new test is even stricter than most other states’ “ABC Tests”, which usually include two ways that Part B can be satisfied.
California employers will now need to reevaluate the way they treat independent contractors under the “ABC Test” to determine whether any or all such workers should be reclassified.