In a recent move many think to be long overdue, California has now joined the list of states currently using the “ABC Test” to distinguish independent contractors from employees. Signing the ABC Test into law on April 30th, 2018, employers are now required to carefully examine all current and future hires of independent contractors to ensure that they can indeed be classified as such and are thereby ineligible for employee benefits such as healthcare or overtime.
One missing point in the three-factor test, California lawmakers warn, and the worker must be acknowledged as an employee and treated as such. Which begs the question: what is the ABC Test and what caused the switch?
Why Did California Choose to Adopt the Test?
California lawmakers first discovered the need for further clarification between the distinguishing factors of an employee from an independent contractor after a recent lawsuit between the delivery company Dynamex and its drivers reached the California Supreme Court – the drivers claiming to have been wrongfully classified as independent contractors by Dynamex, and thereby denied employee benefits.
During the trial, the court asserted that the drivers would win the lawsuit provided they could prove they were employees according to three points in the then-current Wage Order, holding that to “employ” means:
- to exercise control over the wages, hours or working conditions;
- to suffer or permit to work; or
- to engage, thereby creating a common-law employment relationship.
It was when Dynamex countered, however, that such a broad terminology could apply to essentially anyone who does work for another at all, that the court was forced to define an independent contractor – rather than an employee.
And thus, the ABC Test was adopted.
What is the ABC Test?
Commonly used within several other states, a worker can only be deemed an independent contractor if the employer establishes:
A. that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
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 for the hiring entity.
If any one point is deemed inapplicable, then the worker qualifies as an employee and should receive all due benefits.
Perhaps most importantly, however, California law holds that it is the employer’s responsibility to classify each worker correctly, so if your company currently has or is looking to hire an independent contractor, be sure to run them through the ABC Test first!
