On April 30, 2018, the California Supreme Court issued a ruling that makes it significantly harder for companies to classify workers as independent contractors for purposes of claims based on California’s 17 Wage Orders.
The new, so-called “ABC test” requires hirers to establish three factors before classifying a worker as an independent contractor:
The traditional Borello test (also known as the “economic realities” test) may possibly continue to apply to claims of worker misclassification that are not based on alleged Wage Order violations. In S. G. Borello & Sons, Inc. v. Department of Industrial Relations, the California Supreme Court held that out of many factors, the primary factor to be considered under the Borello test is whether the hirer has control or the right to control the worker both as to the work done and the manner and means in which it is performed.
The April 30 ruling is likely to generate a flurry of cases in California courts as parties litigate which claims are and are not going to be subject to the ABC test.
Hirers and workers will also need to clarify whether past court decisions that discuss certain factors in Borello are similar enough to the factors in the ABC test to be relied on by hirers in classifying workers. The court’s failure to clarify whether the ABC test applies retroactively to relevant independent contractor classification decisions is also going to be a sticking point for many litigants.
The Supreme Court’s new ABC test is going to have a considerable impact on workers and hirers. Once a worker is classified as an employee, the hirer will be responsible for paying certain federal and state taxes and complying with state and federal labor and employment laws.
Because of some unanswered questions, hirers with independent contractors in California should consider reviewing their current independent contractor classification decisions using the new ABC test regardless of whether a Wage Order applies to them.
Disclaimer: The information provided in this post is provided for informational purposes only and should not be relied upon or construed as legal advice and does not create an attorney-client relationship. You should review with your legal advisors how the laws identified in this post may apply to your specific situation.
Emerson is Compliance Counsel at Ceridian with many years of experience in U.S. and international legal research and writing. In his current role, Emerson tracks U.S. and international employment legislation impacting Ceridian products, works closely with development teams to integrate compliance changes into the company’s Dayforce HCM software, and conducts legal research as needed.View Collection