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Classifying Workers as Independent Contractors: A California Court Finally Explains the Scope and Function of the New ABC Test

In April 2018, the California Supreme Court adopted the ABC Test as a way to classify workers as independent contractors for purposes of Industrial Welfare Commission (IWC) Wage Orders. What does this mean exactly?

I. The Scope of the New ABC Test

A recent California court case, Garcia v. Border Transportation Group, LLC, explained the scope and function of the ABC Test in classifying independent contractors in California. Firstly, the ABC Test states that a worker is presumed to be an employee, unless the employer establishes all of the following:

(A) The worker is free from the control and direction of the employer in connection with the performance of the work;

(B) The worker performs work outside the usual course of the employer’s business; and

(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature of the work performed.

The ABC Test, however, only applies to claims that a worker brings against the employer that are contained in an applicable IWC Wage Order. IWC Wage Orders are rules that pertain to specific industries and the workers in those industries. For example, in the Garcia case, the plaintiffs were taxi drivers, and therefore Wage Order No. 9 applies because it is about the transportation industry. Thus, the claims contained in Wage Order No. 9 were analyzed by the Garcia court using the ABC Test, and the Plaintiff’s claims not contained in Wage Order No. 9 were analyzed using the former California test: the Borello Factors.

The Borello Factors, before April 2018, were the presiding test for the “employee vs. independent contractor” classification question. Under this test, the primary factor was control (identical to (A) in the ABC Test above). In addition, there were 8 secondary factors to be considered, commonly referred to as “Economic Realities”, such as the degree of dependence the worker has on the employer, both financially and otherwise. Contrary to what some thought after the April 2018 case adopting the ABC Test, the Borello Factors still exist in Factors still exist in California, and are used when a plaintiff’s claim is not contained in an IWC Wage Order. For example, a claim for wrongful termination would be analyzed using the Borello Factors because this claim does not exist in any IWC Wage Order.

II. The Function of the New ABC Test

The ABC Test is much stricter than the Borello Factors in that a failure of any of the three factors means the independent contractor was misclassified (i.e. they should have been an employee). For example, the Garcia case focused on factors (B) and (C), stating the following:

(B) This factor is aimed at whether or not the worker can reasonably be viewed to be working as an employee at the employer’s business; and

(C) This factor “asks whether the worker independently has made the decision to go into business for himself or herself . . . [which] can be proven with evidence that the worker has taken the usual steps to establish and promote his or her independent business—for example, through incorporation, licensure, advertisements, [etc.…].”

This is a very complex analysis because California currently has two tests (ABC and Borello) governing the claims of potentially misclassified independent contractors. So, it is vital to consult legal counsel when classifying employees vs. independent contractors.

This article is purely for educational purposes, and nothing herein is intended to form an attorney-client relationship. Only a signed retainer and/or engagement agreement with us will form such a relationship. However, for questions or concerns regarding the contents of this article, feel free to schedule a free consultation.