ABC Test for Employee Misclassification in California

This post discusses a recent decision by which the California Supreme Court adopted the so-called ABC Test for misclassification of employees as independent contractors.

The relevant case is Dynamex Operations West, Inc. v. Superior Court, decided on April 30, 2018.

Pre-Dynamex Multi-factor Test

Prior to Dynamex, California, like the federal government, considered many factors when deciding whether an independent contractor really is an employee. For example, as I discussed in Avoiding the Independent Contractor Trap, those factors include:

• If the company can tell the individual how to do the work, the individual looks more like an employee; an individual who decides how to do the work looks more like an independent contractor.
• An individual who already has the necessary skills and training looks more like an independent contractor; one who needs training looks more like an employee.
• An individual who is doing work for only one company looks more like an employee; an individual with multiple customers or clients looks more like an independent contractor.
• An individual who always works at the company’s location looks more like an employee; an individual who works elsewhere looks more like an independent contractor.
• An individual who works on the company’s normal day-to-day business looks more like an employee; an individual who works on occasional special projects looks more like an independent contractor.
• An individual who is paid a fixed fee for a defined scope of work looks more like an independent contractor; an individual who is paid based on time may look more like an employee.
• An individual who is working under an appropriately drafted agreement looks more like an independent contractor; an individual without an agreement looks more like an employee.

California Adopts ABC Test

In Dynamex, the Court modeled California’s version of the ABC Test after that used in Massachusetts. The Court characterized that test’s three components as follows:

Part A: Is the worker free from the control and direction of the
hiring entity in the performance of the work, both under the contract
for the performance of the work and in fact? 

Part B: Does the worker perform work that is outside the usual
course of the hiring entity’s business?

Part C: Is the worker customarily engaged in an independently
established trade, occupation, or business of the same nature as the
work performed for the hiring entity?

If you wish to classify an individual properly as an independent contractor, rather than an employee, then you need to satisfy all three components.

The significance of this decision is that some businesses may have to reclassify independent contractors as employees. For example, Uber and Lyft drivers are part of, rather than outside, those companies’ usual course of business. Accordingly, it now appears that those driver are employees rather than independent contractors.

A final comment: In 2004, Dynamex reclassified all of its pickup and delivery driver employees as independent contractors. That was a really bad idea. If you have employees doing certain work, but you decide that they are independent contractors doing that same work, then it is likely that some governmental entity will tell you “No, they still are employees.”

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Update:

On September 18, 2019, Governor Newsom signed Assembly Bill No. 5, which, effective January 1, 2020, will apply the Dynamex ABC Test to most California workers.

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Check out all posts about misclassification.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.