The ABCs of Independent Contractors in California

Posted by: kevensteinberg
Category: Employment Law
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In the complex world of California employment law, the classification of workers as independent contractors or employees is a critical issue. The distinction between the two can have significant consequences for both workers and employers. 

If you are concerned about independent contractor issues, it is important to understand the legal tests used in California to determine worker classification.

What is the ABC Test?

The ABC test is a legal standard used in California adopted by the California Supreme Court in Dynamex Operations W. v. Superior Court and Charles Lee, Real Party in Interest, 4 Cal.5th 903 to determine if a worker should be classified as an independent contractor or an employee. Under this test, a worker is presumed to be an employee unless the employer the following:

  • 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 the work and in fact.
  • B: The worker performs work that is outside the usual course of the hiring entity’s business.
  • C: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Independent Contractor versus Employee

The classification of a worker as an independent contractor or an employee has significant implications. Independent contractors typically have more flexibility in choosing the scope and nature of their work, but they also have less protection under employment laws. 

Employees, on the other hand, are entitled to various labor protections, such as minimum wage, overtime pay, and workers’ compensation benefits. Determining whether a worker is an independent contractor or an employee depends on the specific facts and circumstances of the working relationship. 

It is not based solely on the labels used by the parties involved. Courts and enforcement agencies will look beyond the contract and examine the actual working conditions to determine the true nature of the relationship.

When the ABC Test Does Not Apply

While the ABC test has become the primary test for worker classification in California, there are certain situations where it may not apply. For example, certain professions and occupations, such as licensed insurance agents, physicians, and private investigators, are subject to different legal standards for classification.

Additionally, the ABC test does not apply to situations covered by the Borello test. The Borello test considers various factors to determine worker classification, including the degree of control exercised by the hiring entity, the worker’s opportunity for profit or loss, and the extent to which the worker’s services are an integral part of the hiring entity’s business.

The Borello Test

In California, differentiating between employees and independent contractors is crucial for various legal and social welfare reasons. The Borello test, established by the Supreme Court in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341 (1989), helps navigate this distinction.

Unlike a single decisive factor, Borello relies on considering several aspects of the working relationship:

  • Employer Control: Does the employer have significant control over how the work is done, even if not directly exercised?
  • Worker Independence: Does the worker present themselves as having a separate business from the employer?
  • Work Integration: Is the work performed an essential part of the employer’s core business?
  • Tools and Workplace: Who provides the equipment and workspace for the worker’s tasks?
  • Worker Investment: Does the worker invest financially in necessary tools or materials?
  • Specialized Skill: Does the service require a unique skill set?
  • Supervision: Is the work typically done under direct employer supervision or independently by a specialist?
  • Worker’s Risk/Reward: Does the worker’s income depend on their managerial skills and ability to take on risk?
  • Work Duration & Permanence: Is the work short-term or ongoing, and is the relationship expected to be long-term?
  • Payment Method: Is the worker paid by time or per completed project?
  • Hiring Authority: Does the worker have the ability to hire their own employees?
  • Termination Process: Can the employer terminate the relationship at will, or is a formal breach of contract required?
  • Perceptions of the Relationship: While not determinative, do both parties believe they are forming an employer-employee relationship?

No single factor dominates the Borello test; all relevant aspects must be weighed. Courts may emphasize different factors based on the specific situation.

Borello prioritizes statutory purpose for social welfare legislation, placing less emphasis on “control of details” compared to the common law standard. In essence, the Borello test provides a multi-faceted lens for understanding whether a worker qualifies as an employee or an independent contractor under California law.

California Assembly Bill 5 (AB 5)

In an effort to address concerns regarding worker misclassification, California passed Assembly Bill 5 (AB 5) in 2019. AB 5 codifies the ABC test into law and expands its application to a wide range of industries. 

The law aims to ensure that workers who should be classified as employees are afforded the protections and benefits they are entitled to under California law. AB 5 has sparked both support and opposition. 

Proponents argue that it protects workers and promotes fair labor practices, while opponents contend that it is overly restrictive and limits the flexibility of independent contractors.

Penalties for Misclassifying Workers as Independent Contractors

Misclassifying workers as independent contractors rather than as employees can result in significant legal and financial consequences for employers. In California, employers who misclassify workers may be subject to penalties, including back wages, unpaid taxes, fines, and even criminal prosecution in extreme cases.

Employers should be proactive in ensuring proper worker classification to avoid potential legal risks and liabilities. Seeking the counsel of an experienced attorney can protect both workers and employers from the pitfalls of misclassification.

What Workers Can Do When Employers Classify Them as Independent Contractors

If you believe that you have been misclassified as an independent contractor when you should be classified as an employee, there are steps you can take to address the issue. Consulting with an attorney who focuses on employment law can help you understand your rights and explore potential legal remedies.

An experienced lawyer can assess the specific facts of your case, determine the appropriate legal test for classification, and help you navigate the complex legal landscape. They can advocate on your behalf to ensure that your rights are protected and that you receive fair treatment and compensation for your work.

Los Angeles Independent Contractor Attorney

If you are facing independent contractor issues in Los Angeles and need trusted legal representation, Steinberg Law is here to help. Our team of experienced attorneys specializes in various areas of law, including employment law and worker classification issues. 

We have the knowledge, expertise, and capabilities to effectively represent our clients in navigating through complex legal situations. At Steinberg Law, we understand the challenges and complexities of independent contractor issues and the potential impact they can have on individuals and businesses. 

We have a proven track record of successfully handling cases on both the state and federal level, including presenting cases to the United States Supreme Court. Call us today at (818) 855-1103 or contact us online to schedule a consultation with one of our skilled attorneys. 

Let us guide you through the intricacies of worker classification and help you achieve the best possible outcome for your case.

Author: kevensteinberg