CA Supreme Court Embraces 'ABC Rule' in Deciding Employee Status

LOS ANGELES—On Monday, the California Supreme Court, in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, tightened the state's rules regarding who may be considered an "independent contractor" and who must be considered an "employee" under the state's labor laws. "In this landmark decision, the court embraced a more rigid test than the current, looser standard for determining whether a worker is an employee or a contractor," wrote prominent labor attorney Karen Tynan in an "Urgent Workplace Update" to her clients. "Cases in state courts had been paused in anticipation of the ruling and will now resume their appellate schedule." The decision in the case, which has been making its way through the courts since 2004, was described as "hotly anticipated as a chance for the courts to examine the 'gig economy' and re-examine the legal standards for evaluating the age-old question, 'employee or independent contractor?' ... The lawyers for the workers successfully urged the California Supreme Court to embrace a so-called 'ABC test,' which is used in New Jersey and Massachusetts. That test requires the employer to establish three factors to show a worker is an independent contractor: '[T]hat the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; that the worker performs work that is outside the usual course of the hiring entity’s business; and that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.'" Although the original case involved drivers for a delivery service (Dynamex), the case applies equally to any situations where there is a question of whether a person being hired for some task (say, acting in an adult movie or dancing at an adult cabaret) is by virtue of that hiring an "employee" or "independent contractor." If, under the now applicable ABC test, that hiree fits the new criteria for "employee," then the hiring entity will be responsible for such things as unemployment compensation, nondiscrimination policies, worker compensation and several more requirements. Previous guidelines regarding "employee" versus "independent contractor" status had been loosely interpreted in the past, notably, according to the court, "with regard to the 'parties’ belief regarding the nature of relationship' factor," which the court noted that, "this factor is given less weight by courts." Translation: It matters less what the parties think the relationship is, and more what the job duties entail. According to the Supreme Court, the ABC test "whose objective is to create a simpler, clearer test for determining whether the worker is an employee or an independent contractor, presumes a worker hired by an entity is an employee and places the burden on the hirer to establish that the worker is an independent contractor. ... One of the authors of the legislation, then-Senator (later United States Supreme Court Justice) Hugo L. Black, described this standard as 'the broadest definition' that has been devised for extending the coverage of a statute or regulation to the widest class of workers that reasonably fall within the reach of a social welfare statute." As Tynan noted in her update, the court stated, "[W]hen a retail store hires an outside plumber to repair a leak in a bathroom on its premises or hires an outside electrician to install a new electrical line, the services of the plumber or electrician are not part of the store’s usual course of business and the store would not reasonably be seen as having suffered or permitted the plumber or electrician to provide services to it as an employee. On the other hand, when a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company, or when a bakery hires cake decorators to work on a regular basis on its custom-designed cakes, the workers are part of the hiring entity’s usual business operation and the hiring business can reasonably be viewed as having suffered or permitted the workers to provide services as employees." [Citations omitted] Just how this will work out in practice on adult production sets or in adult nightclubs remains to be seen. However, Tynan warned that, "If you are paying workers as independent contractors, there is a new evaluation for you. Many workers previously classified as independent contractors must now be classified as employees. Further, this decision will likely embolden Plaintiff’s attorneys who will take on many misclassification cases knowing that the standard has shifted. This is a time for companies to manage this risk and make sure that misclassification is not occurring." The full Dynamex decision may be read here.