Employee or Independent Contractor? California Supreme Court Might Have Established a New Test

Under long-standing California law, the test for whether a person working for a business is an “employee” or an “independent contractor” has focused on the right to control the methods/means of the work. As one court recently phrased it, “… the right to control the manner and means of accomplishing the result desired” is the basic criteria of “employment.” By contrast, “[i]f control may be exercised only as to the result of the work and not the means by which it is accomplished, an independent contractor relationship is established.” See Salgado v. The Daily Breeze, Case No. B269302 (Cal. App. 2nd Dist. June 6, 2018) (unpublished). Further, the key is not how much control is actually exercised, but rather “…how much control the hirer retains the right to exercise.” Ayala v. Antelope Valley Newspapers, Inc., 59 Cal.4th 522 (Cal. Supreme Court 2014). Under traditional California law, there are anywhere from seven to 15 facts that the courts investigate to determine the amount of control that a hirer has retained the right to exercise.

However, recently, the California Supreme Court may have muddied the legal waters by changing the test to something called the “ABC” test. See Dynamex Operations West Inc. v. Superior Court (2018) 4 Cal.5th 903 (Cal. Supreme Court April 30, 2018) (“Dynamex”). Dynamex is already causing confusion.

A good San Diego corporate attorney can help draft solid independent contractor agreements. Knowing the law is the first step to creating a contract that will accomplish its intended purpose.

San Diego Corporate Law: What is the ABC Test?

The facts of Dynamex involved an alleged misclassification of workers under Wage Order No. 9 issued by the California Industrial Welfare Commission. Wage Order No. 9 is the applicable state wage order governing the transportation industry. Dynamex is a nationwide package and document delivery company, and the case involved the classification of its drivers. Some language from the Dynamex case seems to limit its application only to wage order cases. Other language in the case seems to suggest that Dynamex should apply to all employment-related cases. One Court of Appeals case has already raised the question. See Curry v. Equilon Enterprises, Case No. E065764 (Cal. App. 4th Dist. May 18, 2018) (certified for publication). Either way, the Dynamex case is significant since the Industrial Welfare Commission’s various wage orders cover a large number of California employees.

Under the “ABC” test, essentially the burden of proof is on the hiring entity to disprove an independent contractor relationship. The placement of the burden on the employer is, itself, a significant change.

To prove that a worker is NOT an employee, the hiring entity must prove EACH of three facts:

• That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
• 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 the work performed.

If this is the new test for an “independent contractor,” this will be a difficult test to meet. Each factor has been part of the traditional analysis of how to classify workers. For example, the first factor is similar to the standard control test. However, the idea that EACH factor must be met raises the bar for employers to assert that certain workers can be classified as “independent contractors.” We here at San Diego Corporate Law will be closely watching developments in this area of law.

Contact San Diego Corporate Law Today

If you want more information on legal issues with respect to distinguishing “employees” from “independent contractors” or if you need help with employment agreements or drafting independent contractor agreements, contact attorney Michael Leonard of San Diego Corporate Law. Mr. Leonard has the skills and experience to provide a full array of transactional legal services for San Diego and California businesses. Mr. Leonard can be reached at (858) 483-9200 or via email.

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