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What You Should Know About the ABC Test for California Independent Contractors

In a review of the ABC test for independent contractors, the California Employment Law Report concluded that there are five important issues regarding the California Supreme Court’s recent decision on the test:

  1. Part A of the test requires 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
  2. Part B of the test requires that the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. Part C of the test requires that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
  4. The contractor must actually be in business for himself or herself.
  5. The Dynamex ABC test only applies to wage-order claims, and the Borello test applies to all other claims.

The California Supreme Court decided in Garcia v. Border Transportation Group, LLC that Dynamex makes clear that the question in part C is not whether Border Transportation prohibited or prevented plaintiff from engaging in an independently established business. Instead, the analysis is this: Did the plaintiff independently make the decision to go into business for himself or herself? Did the plaintiff generally take the usual steps to establish and promote his or her independent business (through incorporation, licensure, advertisements, routine offerings to provide services of the independent business to the public or to a number of potential customers)?

Furthermore, the Court did not reject the Borello decision, which articulates a multifactor test for determining employment status under the Worker’s Compensation Act. Nor did it address the appellate court’s ruling that “insofar as the causes of action in the complaint … are not governed by the wage order” and predicated solely on the Labor Code, “Borello is the applicable standard for determining whether a worker is properly considered an employee or an independent contractor.”

Now, employers not only have to comply with the ABC test, they also have to comply with the factors set forth in Borello for all non-wage order labor code issues.

The Court noted that under the right-of-control test, it is not how much control a hirer actually exercises, but how much control the hirer retains the right to exercise.

More factors that the Court will look at under the Borello test are as follows:

  1. Whether the one performing services is engaged in a distinct occupation or business;
  2. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  3. The skill required in the particular occupation;
  4. Whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
  5. The length of time for which the services are to be performed;
  6. The method of payment, whether by the time or by the job;
  7. Whether or not the work is a part of the regular business of the principal; and
  8. Whether or not the parties believe they are creating the relationship of employer-employee.

Finally, the Borello test has five additional factors borrowed from the Fair Labor Standards Act (FLSA) in making a determination of a worker’s classification:

  1. The alleged employee’s opportunity for profit or loss depending on his managerial skill;
  2. The alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
  3. Whether the service rendered requires a special skill;
  4. The degree of permanence of the working relationship; and
  5. Whether the service rendered is an integral part of the alleged employer’s business.

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Van Beurden Author