In a groundbreaking decision, the California Supreme Court has redefined the test used to determine if workers should be classified as contractors or employees. Under the new “ABC” test, a person will be considered an independent contractor only if the hiring entity can prove all three of the following:
(A) The worker is free from the type and degree of control and direction the hiring entity typically exercises over its employees; and
(B) The worker performs work outside the scope of the hiring entity’s business, and whose work therefore would not ordinarily be viewed by others as working in the hiring entity’s business; and
(C) The worker is customarily engaged in an independently established trade, occupation, or business, taking such steps as incorporating his business, getting a business or trade license or advertising.start a business, and the hiring entity must be able to prove it.
Although the court offered little guidance on how these factors will be interpreted and applied, it provided examples of workers who would be properly classified as contractors (an outside plumber who repairs a leak in the bathroom for a retail store) and those would be improperly classified as contractors (a work-at-home-seamstress who makes dresses from clothes and patterns supplied by a company that intends on selling the dresses).
The court cited to decisions from other states that have already adopted the ABC test, including Massachusetts and Virginia, and cases from these states may be instructive in determining how California will ultimately interpret these factors.
There is ongoing litigation to determine whether use of the ABC test will be retroactive.
Businesses located in California and/or who hire contractors in California are likely to be affected by the adoption of the ABC test. Individuals residing in California, including consultants, advisors, and workers in the “gig economy” may also be affected by this ruling.