California Supreme Court Limits the Ability to Hire Independent Contractors

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By Mandy D. Hexom, Esq.

On April 30, 2018, the California Supreme Court clarified and narrowed the test for determining whether a worker is properly classified as an independent contractor by a hiring entity in Dynamex Operations W. v. Superior Court,  (2018) 4 Cal.5th 903. The Court concluded that the correct test to determine whether a worker is properly classified as an independent contractor is the “ABC Test” requiring the employer to establish each of the three factors (ABC factors) as follows:

(A)       The worker is free from the control and direction of the hiring entity in connection with the performance of the work and in fact;

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

(C)       The worker is customarily engaged in an independently established trade, occupation, or business.

Prior to this decision, there were various factors and tests an employer could use to make the classification decision. Not anymore. The Court held that “[t]he hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an included employee, rather than an excluded independent contractor….” In adopting the ABC Test as the sole test to determine the correct classification of workers, the Court narrowed the meaning of “to suffer or permit to work” definition of the term “employ.” As the Court noted in its decision, “the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenues and millions of workers of the labor protections to which they are entitled.” Employers and hiring entities including association and management entities must carefully examine whether their current or prospective independent contractors meet all of the ABC factors before classifying workers as independent contractors. Now more than ever, it is best to classify a worker as an employee rather than an independent contractor.