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ABC Test - Used To Be A Contractor, Now An Employee

In the age of the gig economy, flexible jobs define how we see our roles as workers and our career progression. If in the 70s and 80s, employees strived to have a traditional workplace system with one employer and steady years of career growth; many workers today prefer the freedom and flexibility of several gigs and independent contractor work. Each of these jobs alone may not be enough to bring in the dough and keep one happy. But sporting a combo-job lifestyle not only pays the bills, it also boosts self-esteem.

Workers, who use this multilevel job model, infuse their bread-winning skills with passion for doing several different things in life. Plus, the extra tax deductions and zero responsibility to a singular demanding boss-figure don’t hurt.

While our current generation of workers is taking charge of life on its own terms, our courts are moving toward a more traditional employee classification system which may discourage businesses from hiring 1099s altogether.

Last year on April 30, 2018, the California Supreme Court issued a unanimous decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903, that will make it more difficult to classify someone as an independent contractor, at least for obligations arising under the California’s Industrial Welfare Commission (IWC) Wage Orders.

Recently, in Vazquez v. Jan-Pro Franchising Int’l (9th Cir. 17-16096), the Ninth Circuit found that the “ABC test” for determining whether employees adopted by the Cal Supreme Court in Dynamex applies retroactively.

Looking at the harm to misclassified workers who lose significant protections, the loss of state revenue from payroll tax obligations, and some other concerns, the California Supreme Court in Dynamex established a new test - the “ABC test” - for purposes of classifying who can be an independent contractor versus an employee.

Based on the ABC test, a laborer will be considered an employee for purposes of the wage orders, unless the employer/company proves all three elements below:

  1. the worker is free from control and direction of the business (think about the ways in which the business may control the means and manner of how the work is performed);

  2. the worker performs work that is outside the usual course of the business (think a home owner hiring a plumber or a bride hiring a make-up artist before the big day);

  3. the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

What The ABC Test Means Going Forward:

Regardless of which side of the fence you belong to about the traditional steady v. non-traditional flexible work model, our judiciary has recently tipped the scales in favor of employees.

Businesses must take proactive steps to analyze whether their workers meet this new restrictive standard of what it means to be an independent contractor. Although the ABC test in Dynamex is applied for purposes of obligations arising under the California’s Industrial Welfare Commission (IWC) Wage Orders, this decision shows a trend away from the 1099 independent contractor workers and toward employees.

Since a misclassification lawsuit can be filed based on IWC Wage Order violations, all worker independent contractor/1099 classifications should pass this more restrictive ABC test.

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