On April 30, 2018, the California Supreme Court filed its decision in Dynamex Operations West, Inc. v. Superior Court and held that businesses must apply the “ABC test” to prove that a worker is an independent contractor, instead of an employee, under California Industrial Welfare Commission (IWC) wage order claims. Under the ABC test, a worker is presumed to be an employee, covered by the IWC wage orders, and businesses have the burden of proving otherwise. As opposed to employees, independent contractors are not covered by IWC wage orders and are thus not entitled to their protections and entitlements (minimum wages, meal periods, etc.).
According to court, a worker is presumed to be an employee and covered by the IWC wage orders unless the business (hiring entity) can establish that all of the following factors (A, B, and C) apply:
A. 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 such work and in fact;
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 of the same nature as the work performed.
The court’s ruling in Dynamex specifically applies to the analysis of the “suffer or permit to work” definition of “employ” contained in the wage orders when evaluating worker status. Importantly, the court did not address which test is applicable to claims of misclassification under other California statutes, only to claims under the IWC wage orders.
What Happens Now
This ruling is effective; therefore, time is of the essence to ensure compliance. Businesses need to review their independent contractor agreements to ensure all workers are properly classified under applicable IWC wage orders and the ABC test.
ThinkHR customers can contact our Live advisors with questions about how this law will impact their workplaces.