SBE News

GSBE Weekly Update 08/08/2018

“ABC” Standard on Independent Contractor Test

GSBE Golden State Builders ExchangesThe California State Legislature returned yesterday from summer break and will adjourn for the year in just four weeks.

In late April, the California Supreme Court issued a decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (April 30, 2018), in which it set forth a new standard for distinguishing between an employee versus an independent contractor.

To distinguish between an employee and an independent contractor, the Court concluded that individuals are presumed to be employees, and a company classifying an individual as an independent contractor bears the burden of justifying that individual’s independent contractor classification under an “ABC test.”

“For the past 30 years we’ve been using a multi-factor test that really focused on control, and now this new test issued by the Supreme Court only focuses on three factors. That ‘B’ factor… whether that service is outside the usual course of business, is really a challenging factor and will completely narrow the ability for individuals to potentially continue their work as freelancers, self-employed, independent contractors,” Barrera said to KPCC.

The ABC test replaces the previously utilized “right to control” or “common law” test, which focused on the hiring entity’s ability to control how the work was performed. Under the more restrictive ABC test, an individual is presumed to be an employee, unless the company can prove all of the following:

  • That the worker 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 the work and in fact; and
  • That the worker performs work that is outside the usual course of the hiring entity’s business; and
  • That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

If the hiring entity fails to show that the individual worker satisfies each of the three criteria, the worker is treated as an employee, not an independent contractor.