Earlier this spring, the California Supreme Court announced a major change in independent contractor law, adopting a “ABC” test for determining whether an individual is an employee or independent contractor. The new independent contractor test is similar to the independent contractor law in Massachusetts, which is notorious for being one of the strictest in the country.
Now, it will be much more difficult for California employers to show workers qualify as independent contractors. The decision will require many employers in California to question whether they should re-classify independent contractors rather than face stiff fines for misclassification.
Under the new ABC test, a person will be considered an independent contractor only if the employer can prove the following:
(A) The worker is free from the type and degree of control and direction the hiring entity typically exercises over its employees;
(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, the decision creates a presumption of an employee-employer relationship that must be disproven by the employer. While the court offered little guidance on how these factors should be applied, it did provide examples of workers who would be classified as independent contractors and those who would be improperly classified as contractors. The court stated that if a business works with a plumber to fix their toilets once a month, the plumber is considered a contractor. On the other hand, if a clothing manufacturer is working with a dedicated, home-based seamstress and providing her with clothing and patterns, she will qualify as an employee.
The impact of the new decision may include an increase in legal challenges by California gig workers currently classified as independent contractors as well as an increase in legislation pertaining to specific industries like ridesharing.
The ruling in California could cause other states to reassess their current tests and introduce modern ones so it’s not a bad idea for employers to reconsider their workers’ classifications regardless of their location. When in doubt, consult a lawyer.