March 10, 2020 Top Story

Presumed Employees Until Proven Independent Contractors

A new law addresses the distinction between employees and contractors

By Nhan T. Ho

Prudent employers care about how to properly classify their workers. The enactment of Assembly Bill 5 (AB-5) by the California legislature augments the force and effect of the “ABC” test adopted in Dynamex Operations West v. Superior Court, which placed a heavier burden on employers to demonstrate that a worker is an independent contractor. ABA Section of Litigation leaders say the new law has many implications for employers, but its future is also questionable.

New protections offered to employees

New protections offered to employees

iStockphoto by Getty Images

The Road to AB-5

Before Dynamex and AB-5, the test in S.G. Borello & Sons, Inc. v. Department of Industrial Relations determined how a California worker was classified. Employing various factors, this test focused on whether the hirer could “control the manner and means of accomplishing the result desired.”

In April 2018, the California Supreme Court decided Dynamex. In that case, the court adopted the “ABC” test in determining whether a worker was an employee or independent contractor under the California wage orders (covering employers’ obligations respecting pay and working conditions for employees). The ABC test provides that a worker is an employee unless the hirer can prove: (A) the absence of the hirer’s control and direction regarding the worker’s service; (B) the performed work is outside the usual course of the hirer’s business; and (C) the worker is customarily engaged in an independent trade that provides similar services to others.

In September 2019, the California legislature enacted AB-5, which codifies and even expands Dynamex’s ABC test. However, under AB-5, the multi-factor Borello test would still apply to numerous potential employment scenarios.

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