The California Supreme Court ruled on a wage order case on April 30, 2018 in the matter of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The Court ultimately rejected the Borello test to determine whether workers should be classified as either employees or independent contractors for the purpose of the wage order. The Court embraces the standard presuming that all workers are employees instead of contractors. Additionally, the Court has adopted a new A-B-C Test.
Employers must satisfy all three criteria to classify a worker as an independent contractor:
A. Control – The independent contractor that is free from control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of such work and in fact.
- May still be employee even if no control over precise manner of work
- Industry standard regarding control considered
- Retaining right to control
B. Type of Work Outside Business – The worker performs work that is outside the usual course of the hiring entity’s business.
- Type of work considered rather than location
- Specialized expertise and tools not otherwise available to the business
C. Actual Independent Business/Entity – 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.
- Employer must prove worker actually engaged in own business
- Contracting as independent contractor not relevant, not preventing worker from outside business necessary, but not sufficient without more
- Not recommended employers require employee to form separate entity
Issues with the ruling:
- The A-B-C test is not necessarily binding on the IRS.
- It is not certain that the A-B-C test applies to wage claims that do not arise from a wage order.
- It is unsure if the ruling applies retroactively or prospectively.
Possible considerations if an independent contractor is really an employee:
- Does an independent contract appear on the hiring company’s website?
- Does the independent contractor have a hiring company’s email address?
- Does the independent contractor have a hiring company’s phone number?
- Does the independent contractor have any other clients?