California Adopted ABC Test for Independent Contractor Status

In a unanimous opinion, the California Supreme Court redefined how courts determine whether workers are classified as employees or independent contractors under the state’s wage orders. The case arose from a class action brought by two delivery drivers against Dynamex Operations West, Inc., alleging that the company misclassified them and other similarly situated workers as independent contractors rather than employees, violating various wage and hour regulations.

Before 2004, Dynamex classified its delivery drivers as employees. After 2004, it adopted a new policy of contracting with drivers as independent contractors. The drivers remained subject to Dynamex’s control over scheduling, dress code, and delivery policies. They were required to provide their own vehicles and pay for fuel and other expenses. The plaintiffs alleged that Dynamex’s control and the drivers’ integral role in its delivery business warranted employee classification under California law.

Court rejected previous test and adopted “ABC test”

The Court rejected the previously used multi-factor test from S.G. Borello & Sons, Inc. v. Department of Industrial Relations, which weighed various aspects of control and economic dependency. Instead, it adopted the “ABC test” for determining worker status under California Industrial Welfare Commission wage orders.

Under the ABC test, a hiring entity must prove all three of the following to classify a worker as an independent contractor:

A) The worker is free from the control and direction of the hiring entity in performing the work, both under the contract 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.

Failure to satisfy any one of the three parts results in the worker being classified as an employee.

Focus on wage order protections

The Court emphasized that the ABC test applies only in contexts governed by California’s wage orders, which provide minimum wage, overtime, and working condition protections. It reasoned that the wage orders aim to protect workers who are economically dependent on the hiring entity and lack the ability to negotiate individual terms.

The Court found that a more simplified and structured approach was appropriate to ensure these protections were not undermined by inconsistent application of the broader Borello test. It also noted that other states had adopted variations of the ABC test and that this approach aligned with the statutory purpose of protecting workers.

Final outcome

The California Supreme Court held that the ABC test governs whether workers are employees or independent contractors under California wage orders. It remanded the case for further proceedings under the new standard.

Help with labor classification and wage order disputes

If your business is navigating worker classification issues or facing wage and hour claims under state labor rules, Whitcomb, Selinsky PC handles employment law matters involving classification audits, wage order compliance, and contractor disputes. Reach out to schedule a consultation and learn how our team can assist with your case.