The California Supreme Court recently heard oral argument in a case—Dynamex Operations West, Inc. v. Superior Court of Los Angeles County—that may alter the long-standing test in California for independent contractor status and bring big changes to how the state defines independent contractors, who make up a growing body of workers in the gig-economy era. Companies like Uber, Grubhub and Amazon have faced suits over allegedly misclassifying workers as independent contractors instead of employees.
Why Is Missclassification of Employees An Important Issue?
Misclassification of employees as independent contractors has enormous implications for both workers and the economy. Misclassified employees often are denied access to critical benefits and protections they are entitled to by law, such as the minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces.
The Borello Test
California courts currently analyze misclassification cases under a multifactor test the state Supreme Court laid out in 1989 in S.G. Borello & Sons Inc. v. Department of Industrial Relations. The Borello test emphasizes an employer’s control over workers claiming employee status, and considers several secondary factors, including whether the work is part of the company’s regular business, the skill required, payment method and whether the work is done under supervision of a manager.
The issue in Dynamex is whether, in wage and hour cases in California, the Supreme Court should continue to apply the Borello test or whether state law should embody a test similar to the “ABC” test.
The ABC Test
The “ABC” test, as formulated by the Supreme Court of New Jersey in Hargrove v. Sleepy’s LLC, presumes an individual in question is an employee UNLESS and UNTIL the employer is able to demonstrate that all three prongs of the “ABC” test are met.
- Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact;
- Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
- Such individual is customarily engaged in an independently established trade, occupation, profession or business.
Should the California Supreme Court adopt the “ABC” test, as it appears to be considering, this would make it significantly harder for Uber, Grubhub, Amazon and other employers to prove that its workers have been properly classified as independent contractors.
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