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New California Independent Contractor Test
The California Supreme Court just replaced the old test used to determine when a worker is an independent contractor with a new one. Many businesses will not like it. The case that requires the new test is called: Dynamex Operations West, Inc. v. Superior Court of Los Angeles. Now, before a worker can be an independent contractor rather than an employee, the employer must prove all three of the following elements:
That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the work and in practice.
That the worker performs work that is outside the usual course of the hiring entity’s business.
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 for the hiring entity.
Because the test has three elements, it has been dubbed the ABC test. Almost two-thirds of the other states use that test, or a version of it, so it is not really a new test. It should have a huge impact in California.
Now, if a worker is performing work for which the business receives compensation, then the business might think twice about making the worker an independent contractor. In Dynamex, the California Supreme Court held that delivery drivers who deliver packages for a delivery company must be employees under the new test. The old test left room to argue that issue.
Further, the Court implied that a plumber who fixes an over flowing toilet is probably not an employee of a restaurant who is a client of the plumber. However, if a handyman fixes a toilet, does other part time work for the restaurant, and has few, if any, other clients, then that handyman may not pass element three. Further, if the restaurant exerts control over the time, place, and method of work, then the handyman may not pass element one.
Uber and Lyft are still litigating the issue of whether or not their drivers are independent contractors in California. Now, because those services make money from providing drivers to its customers, Uber and Lyft will probably fail to qualify workers as independent contractors under element two. They may still try to argue that they are only platforms that facilitates ride sharing, but follow the money.
What other industries may feel the affect of the new California test?
For years, certain sectors of the trucking industry have tried to classify drivers as independent contractors. They have not always won their arguments, but now, I suspect, they will win even fewer. As Dynamex illustrates, if a worker drives a truck for a delivery company, that worker is probably an employee. If a worker drives a company truck for a business and delivers the goods of that company, that worker will probably be an employee. In that case, to prove those workers are independent contractors, the company would need to have little control over the delivery, not have delivery as a part of its business, and the driver would need to be in business for him or herself. Trucking companies should be very wary of leasing the truck to workers and having them perform deliveries for the company. That common practice may fail under the new test.
Any company that has independent contractors perform its work, especially functions of its core business, should review the arrangement. Not reviewing such arrangements could cost them heavily in future lawsuits or Labor Commissioner claims.
Dynamex leaves some questions open. We do not know whether the new test applies to California regulatory agencies or to the Labor Code. Arguably, it only applies to California Wage Orders, but I think that eventually it will be the only test for independent contractor classification in California.
S. Ward Heinrichs, Esq.
Employment Law Office of Ward Heinrichs
4565 Ruffner Street, Suite 207
San Diego, CA 92111
(858) 408-7543 (fax)
Employment Law Office of WARD HEINRICHS
4565 Ruffner St. Suite 207 San Diego 92111
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