Independent Contractor Test: Legislature Should Act

During an interview with KPCC radio this week, Jennifer Barrera, senior vice president of policy for the California Chamber of Commerce, highlighted the urgent need for the Legislature to pause the application of a recent court ruling to allow time to decide the best test for determining whether a worker is an independent contractor.

The California State Legislature returned from summer break this week and will adjourn for the year in just four weeks.

To listen to the entire August 6 interview on AirTalk, visit the KPCC website.

Dynamex Decision

In late April, the California Supreme Court issued a decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (April 30, 2018), in which it set forth a new standard for distinguishing between an employee versus an independent contractor. (See May 4, 2018 Alert).

To distinguish between an employee and an independent contractor, the Court concluded that individuals are presumed to be employees, and a company classifying an individual as an independent contractor bears the burden of justifying that individual’s independent contractor classification under an “ABC test.”

“For the past 30 years we’ve been using a multi-factor test that really focused on control, and now this new test issued by the Supreme Court only focuses on three factors. That ‘B’ factor… whether that service is outside the usual course of business, is really a challenging factor and will completely narrow the ability for individuals to potentially continue their work as freelancers, self-employed, independent contractors,” Barrera said to KPCC.

‘ABC’ Test

The ABC test replaces the previously utilized “right to control” or “common law” test, which focused on the hiring entity’s ability to control how the work was performed. Under the more restrictive ABC test, an individual is presumed to be an employee, unless the company can prove all of the following:

A. That the worker is free from 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.

If the hiring entity fails to show that the individual worker satisfies each of the three criteria, the worker is treated as an employee, not an independent contractor.

Employer Concerns

Barrera explained that for California employers, the court ruling has produced a lot of concern and confusion on how this new standard will be applied, how broadly it will apply, and the different industries that will be affected.

“A decision like this, that is going to have such a significant impact on so many industries in California, we really feel like it’s the Legislature’s role to intervene, pause the application of this decision so that they can take into consideration all of the different professions and industries that are impacted… and really look at whether or not this ‘ABC Factor’ is appropriate and should be applied across the board to all these different professions that could be impacted and jeopardized as a result of this decision.”

The show, AirTalk, took live calls from employees, employers and independent contractors from an expansive list of industries explaining how the new test could affect them.

Toward the end of the show, Barrera said that all the calls from various affected industries are the prime example why this ruling is not just a one-size-fits-all situation.

“The Legislature really needs to step in and identify what is the appropriate standard for California,” she said.

CalChamber Coalition

A CalChamber-led coalition is working to build support for workers’ ability to work independently.

Through its website at imindependent.co, the coalition explains why state lawmakers need to suspend putting a recent court decision into effect so that there can be a robust legislative discussion about how best to balance worker protections with a flexible work model.

Information also is available in the recent Capitol Insider blog post at capitolinsider.calchamber.com.

Staff Contact: Jennifer Barrera