California Supreme Court Replaces Tests for Determining Independent Contractor Status
Today, the California Supreme Court issued its much-anticipated ruling in Dynamex Operations West, Inc. v. Superior Court, No. S222732, in which the Court decided to replace the decades-old test for determining if a worker is an employee or an independent contractor for claims asserted under the IWC Wage Orders. Among other things:
The Court interpreted the California independent contractor standard as putting the burden on the business to prove a worker is an independent contractor rather than an employee.
The Court adopted the “ABC" Test applied in some form in other jurisdictions, including New Jersey and Massachusetts.
To meet the burden set forth by the ABC Test, a business must establish each of the three ABC factors: (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 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.
Failure to establish any of the three factors results in a determination that the worker is an employee as a matter of law.
The Court's ruling specifically applies to the definition of “to suffer or permit" under the IWC Wage Orders, and the Court expressly left open which test applies to claims asserted under other statutes (e.g., Cal. Lab. Code § 2802).
As a result, many businesses will need to examine their use of independent contractors, including any independent contractor agreements, to ensure compliance with the new standard.
We intend to provide a full client alert on the new independent contractor classification standard in the near future.