California Supreme Court Adopts ABC Test for Independent Contractors

Posted on May 4, 2018

The California Supreme Court has ruled that the ABC test should be used to determine whether a worker is an independent contractor or an employee and therefore covered under the state's Wage Orders. The Wage Orders address minimum wage, overtime, meal and rest breaks, and related issues across various industries and cover employees, but not bona fide independent contractors.

California Supreme Court Case:

In Dynamex Operations West, Inc. v. Superior Court, an employer had reclassified delivery drivers from employees to independent contractors in 2004. Two delivery drivers later sued, alleging the employer misclassified them as independent contractors and that the decision led to violations of California's Wage Order No. 9 in addition to other violations.

The employer and delivery drivers disagreed about which test should be used to determine whether they were employees or independent contractors. The employer argued that the court should use a multifactor test under which no single factor is determinative and the unique circumstances of each case is weighed and balanced. The delivery drivers argued that the ABC test should be used, which is generally a more difficult test to satisfy since all three factors must be met.

The California Supreme Court ultimately ruled that the ABC test should be used for determining whether a worker is an employee or independent contractor for the purposes of the state's Wage Orders.

ABC Test:

Under the ABC test, a worker is considered an independent contractor if:

  • 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 performance of such work and in fact;
  • The worker performs work that is outside the usual course of the hiring entity's business; and
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

In addition to adopting this test, the Court ruled that the hiring entity has the burden of establishing that the worker is an independent contractor who was not intended to be covered by the Wage Order. The hiring entity must show that all three factors of the ABC test are met.

Compliance Recommendations:

For purposes of determining coverage under the state's Wage Orders, California employers should apply the ABC test. If the worker fails to satisfy one or more parts of the test, they must be treated as an employee (entitled to minimum wage, meal and rest breaks, and other protections). Employers who work with independent contractors may want to consult legal counsel to review those classifications and to address reclassifications if necessary.