Whether a worker is an “employee” or an “independent contractor” is critical when it comes to such important issues as pension eligibility, workers' compensation coverage, wage and hour law, and many other matters. In some situations, federal law will govern, but the question is most often resolved by looking to state law, particularly in areas such as unemployment tax liability, workers' compensation, and state wage and hour requirements.
Current test. The California Supreme Court’s ruling in a case exploring whether workers should be classified as independent contractors or as employees means California businesses will have a tougher time justifying independent contractor classifications. The court’s ruling significantly toughens the test used to determine whether a worker can be classified as a contractor, and the change is expected to have a big impact on gig economy workers (Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County No. S222732, Cal. Sup. Ct. (2018)). Under the ruling, California has adopted the “ABC test” to classify workers. Previously, the state used a multifactor test focusing on the level of control the hiring entity had over the worker’s performance of the work.
The ABC test presumes a worker is an employee unless the hiring entity proves the following:
1. 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 the work and in fact.
2. The worker performs work that is outside the usual course of the hiring entity’s business.
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the ...