California Supreme Court Broadens Definition of Employee in Independent Contractor Analysis

06/06/18

Author: Jody Rodney/Tuesday, June 5, 2018/Categories: Compliance Corner

Overview: The California Supreme Court recently announced a significant change in independent contractor law, adopting a strict three-prong test for determining whether an individual is an employee or an independent contractor.   

Effective Date: April 30, 2018  

Details: Diverging from decades-old precedent, the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County announced a significant change in independent contractor law, adopting a strict three-prong test for determining whether an individual is an employee or an independent contractor under the state’s Industrial Work Commission Wage Orders (“Wage Orders”). Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, 2018 Cal. LEXIS 3152 (Cal. Apr. 30, 2018).  Under the new standard, to establish that an individual is in fact an independent contractor, an employer must prove that: 
  • It does not control how the individual performs the work; 
  • The individual provides a service that is not part of the employer’s usual business; and 
  • The individual customarily engages in an established business, trade, or profession that is independent of the employer’s business. 
The Court makes clear that the employer has the burden of proving all three elements listed above to establish independent contractor status.
  

Background:  For nearly 30 years, California courts have applied what is known as the Borello test for determining whether a worker was an independent contractor under the Wage Orders. This flexible, multi-prong approach primarily considered whether the hiring entity had a “right to control” the manner in which the worker performed the contracted service. The Borello test also included other “secondary” factors, such as whether the worker was engaged in a distinct occupation or business, the skill required in the particular occupation and whether the worker or the hiring entity supplied the tools used to perform the work and the place where the work was performed.  

ABC Test  

The Dynamex decision abolishes the Borello test and concludes that the appropriate analysis for determining whether an employer-employee relationship exists is the “ABC Test” adopted by other state courts.  

Under the ABC test, a worker is presumed to be an employee unless the worker:  

(A) Is free from the employer’s control and direction;  

(B) Performs a service that is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and  

(C) Customarily engages in an independently established trade, occupation, profession, or business.    

Call to Action: California employers who have entered into work arrangements with individuals other than those who traditionally have been deemed independent contractors (e.g., electricians, plumbers, and HVAC professionals) should promptly and carefully review the status of those workers, particularly if the employer previously classified such individuals as employees. Employers may wish to engage legal counsel to assist with this analysis.      

Please contact your Service Team with any questions.  


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