By: Naomi Gemmell, Esq.
In April 2018, the California Supreme Court adopted a new test to determine whether a worker is an employee or an independent contractor (Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (April 30, 2018)) (“Dynamex”). This change in the law impacts a huge number of workers and hiring entities—at its current growth rate, many experts predict that the majority of the U.S. workforce will consist of freelancers by 2027. (See, e.g., Freelancing in America 2017). On October 22, 2018, the California Court of Appeal limited the application of this new test to claims arising under California’s wage orders in the case Garcia v. Border Transportation Group (“Garcia”). (Garcia v. Border Transportation Group, LLC, D072521 (October 22, 2018) ).
The test that the Court established in Dynamex, called the “ABC Test,” was an unexpected departure from the “Borello” test that California courts have applied for the past three decades. (S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989)).The Borello test is flexible, permitting courts to weigh nine different factors to determine whether a worker is an independent contractor. Meanwhile, the ABC Test is rigid—it has three dispositive factors, making it more difficult for a worker to earn the status of independent contractor.
Specifically, the ABC Test creates a presumption that a worker is an employee, placing the burden on the hiring entity to prove otherwise. To establish that a worker is an independent contractor, the hiring entity must prove all three of the following elements:
- The worker is free from the hiring entity’s control and direction in connection with his/her performance of the work, both under the contract for performance of the work and in actually performing the work;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
As exemplified in Garcia, workers who would have been considered independent contractors under the Borello test can easily fail the ABC Test, especially due to the stringent requirements of Parts B and C. In the Garcia case, Garcia was a taxicab driver who alleged that he should have been treated as an employee rather than an independent contractor. Applying the Borello standard, the trial court found that Garcia was an independent contractor. However, when the Court of Appeal applied the ABC Test to Garcia’s wage order claims, it found that Part C of the test was not established.
The Court’s decision in Dynamex left a question mark as to whether the test would apply to non-wage order claims. In Garcia, the California Court of Appeal has provided some clarity and confirmed that the ABC Test will only apply to wage order claims, and that the Borello test will continue to apply to all non-wage order claims. Although this limitation on the ABC Test is a win for hiring entities, application of the ABC Test remains an area to stay vigilant. Misclassification of an employee as an independent contractor could lead to significant liability for hiring entities.
If you have any questions regarding California’s unique employment laws or these employment law updates, please contact Naomi Gemmell. Naomi is an Associate in the firm’s Employment and Litigation Practice Groups. Naomi is based in Leech Tishman’s El Segundo, CA office and can be reached at 424.738.4400 or email@example.com.
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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, aviation & aerospace, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, internal investigations, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in El Segundo, CA, Chicago, Los Angeles, New York, Sarasota and Wilmington, DE.