TERRY O’CONNOR | NOLAND HAMERLY ETIENNE & HOSS AGRICULTURE & THE LAW
California Supreme Court Ruling Threatens Independent Contractor Relationships
An increasingly unloved category of working persons, the Independent Contractor, has been moved to the endangered species list by a recent California Supreme Court decision.
service providers are employees of the hiring entity, unless all of the following are present: A. The worker is free from the control and direction of the hiring entity, both under the contract for the performance of the work and in fact; and B. The worker performs work that is outside the usual course of the hiring entity’s business; and C. The worker is customarily engaged in an independently established trade, occupation, or business. The ABC test is not a balancing test – if the hiring entity cannot prove all three prongs in an administrative or judicial proceeding, the presumption of employment applies and the worker will be classified as an employee. Part A of the ABC test looks to both the right to exercise control and whether control is exercised in practice. Like the traditional multi-factor “right to control” test, Part A looks to the nature of the work and the relationship between the business and the person performing the work. A business need not control every detail of the work in order to have maintained enough control to fail this test. Hiring entities and individuals should scour their contractor agreements to remove any language that would give them implied control over a contractor. Independent contractor agreements should scrupulously avoid any employment-like provisions. For example, at-will employment status, overly restrictive prohibitions on working for others or other policies drafted for the entity’s true employees. Part B looks to the services provided and whether they are the same services provided in the ordinary course of the hiring entity’s core business. It requires an analysis of whether the worker is providing services that are not routine in the hiring business but rather need to be performed by a traditional independent contractor like a plumber or electrician or one who otherwise has expertise not required in the hiring entity’s day
On April 30, 2018, the California Supreme Court adopted a new test for determining whether a worker should be classified as an independent contractor or an employee. When this test is applied, expect a breath-taking expansion of the number of California workers covered by the wage and hour regulations of California’s Industrial Welfare Commission (IWC) Wage Orders. There will be a concomitant decrease in the number of independent contractors. Many businesses and individuals will painfully learn that the independent contractors they engaged are actually employees with all of the considerable rights and obligations attached thereto. In Dynamex Operations West, Inc. v. Superior Court of Los Angeles , the California Supreme Court rejected the long- standing “right to control” standard, which weighed various indicia of the principal’s control over the worker to determine if a worker was properly classified as an independent contractor or employee. Dynamex had originally engaged its drivers and couriers as employees. It later reclassified them as independent contractors. When challenged in court, the company argued that its contract and practices did not show the requisite control over the workers to characterize them as employees. The court rejected the “right to control” standard and adopted an “ABC” test to determine whether a worker falls under the broad “suffer or permit to work” standard. “Suffer or permit to work” is part of the definition of employer contained in all Wage Orders. Under this test, an entity which knowingly allows another individual to provide services, regardless of a lack of control over the worker, is nevertheless the employer of that individual. The ABC test is used by many state unemployment insurance agencies and more broadly in certain other jurisdictions, including Massachusetts and Vermont. It appears that California has now joined these other liberal Blue States to limit the use of independent contractors. The ABC test begins with the presumption that individual
16 Western Grower & Shipper | www.wga.com JULY | AUGUST 2018
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