Independent Contractor or Employee?

This Newport Beach real estate attorneys article covers California laws that determine whether a worker is an employee or an independent contractor. It analyses the ABC test used by California courts to determine worker status and exceptions to the ABC test, as well as the common law test to determine employee or independent contractor status if the 3-part test cannot be applied.

ABC Test

In Dynamex Operations W. v. Superior Court, the California Supreme Court adopted an “ABC” test to determine who is an employee for purposes of California wage orders. The Court placed the burden on the hiring entity to establish that the worker is an independent contractor who was not intended to be included within the wage order’s coverage; and required the hiring entity, in meeting this burden, to establish each of the three factors embodied in an “ABC” test as follows

(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; and

(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.

The hiring entity’s failure to prove any one of these three prerequisites is sufficient in itself to establish that the worker is an included employee, rather than an excluded independent contractor, for purposes of the wage order.

Labor Code § 2775 codified the ABC test and provides that a person providing labor or services for remuneration must be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

A. The person 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 work and in fact.

B. The person performs work that is outside the usual course of the hiring entity’s business.

C. The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

Notably, while the Dynamex ABC test was limited to IWC Wage Order violations, Lab. Code   2775 expands the reach of the ABC test to violations of the Labor Code generally.

ABC Test Exceptions

Business Relations

1. Business to Business Lab Code § 2776-2784