By UpCounsel Employment Attorney Josh Garber

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.

Importantly, a hiring entity does not satisfy part C of the test simply by showing that it does not prohibit or prevent a worker from engaging in such an independent business. Rather, the court put an emphasis on the “independent” in “independent contractor,” specifically stating that for a worker to be classified as a contractor, the worker must have made an independent decision to go out on their own and 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.

In adopting this new test, California spoke to the importance of ensuring citizens are protected by California’s wage and hour laws, including access to overtime pay and meal and rest breaks. The court also stated that misclassification of workers as independent contractors has deprived federal and local governments of billions of dollars.

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.

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About the author

Josh Garber

Josh Garber

Josh has worked on nearly 200 projects through the UpCounsel marketplace and all 100 of his clients who have reviewed his work gave him 5 Stars. Josh, a graduate of the University of Pennsylvania Law School, regularly represents businesses in employment matters, business transactions and formations, contract drafting and management, and IP and corporate governance matters. Though he is dedicated to helping his clients avoid litigation, Josh has extensive trial experience and has obtained favorable outcomes in state and federal courts, mediations, arbitrations and DLSE hearings. Josh's clients include HotelTonight and Tesla.

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