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Is There an “Independent Contractor” Test?

Orange County business litigationAnyone who owns or manages a business knows that the threat of litigation is ever present. Unfortunately, a business’s own employees are often the source of litigation. This is particularly true if a business utilizes independent contractors. For a business owner, it can be extremely difficult to avoid disputes over the classification of workers when the guidelines for determining how to classify workers is constantly changing. The Orange County business litigation attorneys at Brown & Charbonneau explain California’s latest independent contractor test.

Why Does It Matter If a Worker Is an Independent Contractor?

Courts have long struggled with the distinction between an “employee” and an “independent contractor,” but why does it matter? If you are a worker, it matters a great deal because your classification will directly impact things such as the benefits to which you are entitled and the taxes you are required to pay. If you are a business owner, it matters because a worker’s classification will dictate whether or not you must carry workers’ compensation insurance on the worker and withhold taxes.

The Borello Test

Unfortunately for everyone involved, a universally accepted definition or test to determine a worker’s employment status does not exist. As such, we must look to the law of an individual state (or to federal law if applicable) when trying to make the determination. For many years, California courts used the criteria developed in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (Cal. 1989) to decide if a worker was an independent contractor. Referred to as the Borello test, the most important consideration under the test was who controlled the work. In addition, eight secondary factors are taken into consideration including whether the worker was engaged in a distinct occupation or business and the skill required in the particular occupation as well as whether the hiring business supervised the work and whether the worker or the hiring entity supplied the tools used to perform the work.

The New “ABC” Test

In 2018, the California Supreme Court rejected the long-standing Bordello test and replaced it with a more rigid test modeled on Massachusetts’ independent contractor statute. That statute is commonly viewed as among the strictest independent contractor tests in the country. The new ABC test will only declare a worker to be an independent contractor if the hiring entity can prove all three of the following:

A. 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;
B. That the worker performs work that is outside the usual course of the hiring entity’s business; and
C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

As is often the case, the Court did not provide a significant amount of guidance with regard to how to interpret or implement the factors noted in the new test. It did, however, not that the first prong (“A”) of the test is similar to the common-law test used in Borello, asking whether the person is free from the “type and degree of control a business typically exercises over employees.” With regard to the second prong (“B”) the Court suggested focusing on whether the person is “providing services to the business in a role comparable to that of an employee, rather than in a role comparable to that of a traditional independent contractor.” Finally, the third prong (“C”) asks whether the person “independently has made the decision to go into business for himself or herself” which might be proven by things such as “incorporation, licensure, advertisements, [or] routine offerings to provide the services of the independent business to the public or to a number of potential customers.”

Note: The “ABC” test only applies to Industrial Welfare Commission Wage Orders. The California Supreme Court did not make any rulings about whether this test would also apply to other wage and hour laws. Moreover, the nature of the claim may prompt a court to use a different test as evidenced in California Trucking Association v. Su. In that case, the 9th Circuit Court of Appeals ruled that the California Labor Commissioner could apply the old Bordello test to a case involving truck drivers who claimed they were misclassified as independent contractors.

Whether you are a worker or an employer, it is always best to consult an experienced business attorney if you are unsure of a worker’s classification to avoid litigation down the road.

Contact Orange County Business Litigation Attorneys

If you have additional questions or concerns about who qualifies as an independent contractor in the State of California, it is in your best interest to consult with an experienced Orange County business litigation attorney as soon as possible. Contact the team at Brown & Charbonneau today by calling 714-406-4397 to schedule your appointment.