URGENT CA UPDATE: California Supreme Court Adopts New Independent Contractor Test
In Dynamex Operations v. Superior Court, the California Supreme Court has adopted a new three-part test to determine whether a worker is an independent contractor or an employee under California’s wage orders, which regulate wages, hours, and working conditions. The highly anticipated ruling could have wide ranging effects for businesses operating in California and beyond, as companies try to navigate the new gig economy. Although other states use the ABC test, it’s wording varies from jurisdiction to jurisdiction. In Dynamex, the Court held that, for purposes of California Wage Order claims, the definition of “employment” identified in California’s Wage Orders governs, and articulated a new standard for what it means for an employer to “suffer or permit” an individual “to work.” The new test presumes that any worker hired to perform services is an employee of the hiring business. Under the new standard, the burden is on the employer disputing employee status to prove all of the following elements (referred to as the “ABC” test): (A) 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 for the performance of the work and in face; 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. The Supreme Court justified it’s decision largely on policy grounds, stating that the ABC test was more fair to workers who wanted the “fundamental protections” of California’s Wage Orders, and that using a less employee-friendly standard could create a “race to the bottom” where businesses implement substandard wages and unhealthy conditions by trying to avoid the protections of the Wage Orders.