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
2. Referral Agency § 2777(a)
3. Professional Services §2778(b)
4. Single Engagement Business §2779(a)
5. Entertainment / Music Industry §2780(a)(1)
6. Subcontractors § 2781
7. Data Aggregator § 2782
8. Motor Club § 2784
9. Real Estate Licenses and Repossession Agencies § 2750.3(d)
10. Bona Fide Business Service Providers and Contracting Businesses § 2750.3(e)
11. Construction Contractors and Individual Subcontractors § 2750.3(f)
12. Referral Agencies and Service Providers § 2750.3(f)
13. Relationships Related to Motor Club Services § 2750.3(h)
Borello Right to Control Test
The California Supreme Court articulated the general common law test for determining whether an employment relationship exists for the purposes of California labor law in S. G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (1989) 48 Cal. 3d 341.
Under Borello, “[t]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”
The following factors are also used by the court to determine whether an individual is an employee or an independent contractor.
Whether the one performing services is engaged in a distinct occupation or business;
The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
The skill required in the particular occupation;
Whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
The length of time for which the services are to be performed;
The method of payment, whether by the time or by the job;
Whether or not the work is a part of the regular business of the principal;
Whether or not the parties believe they are creating the relationship of employer-employee;
Whether the principal has the right to discharge at will.
Whether regular working hours are set by the person for whom work is performed.
Whether the person performing the work is engaged full time by one person.
Whether the work is performed in a specific area or over a fixed route.
Whether the person who ordered the work is in business.
Whether under the terms of the agreement the work may be delegated.
Simultaneous Status as Independent Contractor and Employee
A person may simultaneously be an employee for one purpose, and an independent contractor for another purpose. For example, a real estate salesperson, for the purpose of administering the real estate law, is the employee and agent of the broker.
For the purpose of establishing tort liability, a broker is liable under the doctrine of respondeat superior for the tortious acts of sales personnel during the course and scope of business because of that agency relationship. However, a real estate salesperson is not an employee for the purpose of workers’ compensation or for the purpose of federal employment taxes.
If you are an employer and you're unsure whether your workers are employees or independent contractors, or if you are a worker and you are having a dispute with your employer as to your status, call our Newport Beach real estate attorneys office for a free phone consultation: 1-800-233-8521.