California Employers Watch Out: Court Adopts New Standard Evaluating Independent Contractor Classification

By Hilary Atkins posted 9 days ago

Companies and individuals have long used independent contractor relationships to provide workers greater flexibility and to lower costs. However, in a recent case before the California Supreme Court, a new standard was adopted to determine whether a worker is properly classified as an employee or an independent contractor.

In a seismic shift, the court held that all workers are presumed to be employees, and that companies must prove that independent contractors are properly classified under the new standard, reversing decades long assumption of the reverse relationship.

Prior to this decision, California courts used a multi-factor standard, in which such aspects as the worker’s investment in tools used, the method of payment, the degree of permanence of the relationship, and the parties’ intention regard the relationship, in determining the worker’s status with the company.

Under the new standard, workers are classified as independent contractors only if the hiring entity demonstrates that the workers satisfies all of the following three conditions:

A) That the worker is free from control and direction of the hirer in connection with the performance of the work, both under the contract for performance of the work and in fact;

B) 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 that involved in the work performed.

C) The court did not clarify or expound upon what it meant by “customarily engaged.”

Thus, the burden of proof has shifted to the employer that the worker meets each of the three “ABC” factors. This new standard has been dubbed “the ABC test”.

This decision marks a huge change in the law regarding independent contractor/employer classification. California members should immediately re-evaluate those workers they classify as independent contractors, and reclassify if they fail to meet the ABC test.

California employers can also expect to see a whole host of plaintiffs’ lawyers seeking to apply the test retroactively with independent contractor class action lawsuits.