Compliance Alert! - New ABC Test for Independent Contractors

The California Supreme Court announced a significant change in independent contractor law, adopting a modified “ABC” test for determining whether an individual is properly classified as an Independent Contractor or if they should be classified as an employee.

California’s new independent contractor test is considered the strictest in the country.

Under this new test, a person will be considered an independent contractor only if the hiring entity can prove all three of the following:

A. That the worker is free from the 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;
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.

The California Supreme Court noted that the “A” prong (freedom from control and direction) is similar to the common-law test used in Borello, asking whether the person is free from the “type and degree of control a business typically exercises over employees.” 

The “B” prong (outside the usual course of the business) focuses on whether the person is “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.” 

And the “C” prong (independent trade, occupation, or business) asks whether the person “independently has made the decision to go into business for himself or herself,” evidenced by things such as “incorporation, licensure, advertisements, [or] routine offerings to provide the services of the independent business to the public or to a number of potential customers.” 

While presenting limited substantive guidance, the Court did make clear that it intended this new ABC test to be stricter than the previous tests.

If you are currently working with any Independent Contractors and unsure if they pass the ABC Test please contact us at your earliest opportunity at:
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Info@dsahrsolutions.com   or (707) 361-5385

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