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New California Test For Employee vs. Independent Contractor

| May 1, 2018 | Wage and Hour Claims

The California Supreme Court adopted a new legal standard that will make it more difficult for businesses to misclassify workers as independent contractors. This will directly affect the trucking and transportation industry as well as the gig economy (e.g., Uber, Grubhub, Bellhops, Caviar, Dolly, DoorDash).

Specifically, the Court adopted a new standard for determining whether a company “employs” or is the “employer” for purposes of California law.

Under the new “ABC” test, a worker is considered an employee unless the hiring entity establishes all three of these prongs:

  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 such work and in fact;
  2. the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Prong A: “Free From Control And Direction”

The Court first discussed the “A” prong, which is akin to the common law control standard. The Court concluded that a worker who is, either by contract or by practice, subject to the type and degree of control a business typically exercises over employees should likewise be considered an employee. Accordingly, businesses must now establish that workers are free of such control to meet this part of the test. The Court confirmed that a business “need not control the precise manner or details of the work” in order to be found to have maintained the necessary control sufficient to lead to a finding of employee status.

Prong B: “Outside Usual Course Of Business”

Prong “B” seeks to determine whether workers can reasonably be viewed as individuals who are providing services to the business in a role comparable to that of an employee, rather than in a role comparable to that of a traditional independent contractor. Workers whose roles are “most clearly comparable” to those of employees include workers whose “services are provided within the usual course of the business” and thus would “ordinarily be viewed by others as working in the hiring entities’ business.”

Prong C: Customarily Engaged In Independent Trade

The third “C” prong seeks to identify those workers that have taken steps to create their independent business. If the worker has independently made the decision to go into business for themselves, they are likely to be found as satisfying this third prong. If, on the other hand, they are “simply designated as an independent contractor by the unilateral action of a hiring entity,” there is a substantial likelihood they will be found to be an employee.

For more information contact one of our attorneys.

Source: https://www.fisherphillips.com/resources-alerts-contractor-apocalypse-california-supreme-court-adopts-broad?click_source=sitepilot06!3159!b2xlZ0BsZWNsZXJjbGF3LmNvbQ==, “Contractor Apocalypse: California Supreme Court Adopts Broad New Misclassification Test,” April 30, 2018.