Businesses that use independent contractors in California need to be wary before classifying a worker as an independent contractor. The reason for precaution is that it is unlawful in California for any person or employer to willfully mis-classify an individual as an independent contractor.
Historically, California courts have applied various tests to determine whether an individual is an employee or an independent contractor. These tests vary depending on the situation. For example, the independent contractor test for the application of wage and hour laws is different from that for Workers’ Compensation Act.
The ABC Test for Independent Contractors
On April 30, 2018, the California Supreme Court adopted the ABC test to determine whether a worker is an independent contractor or an employee for the purpose of wage and hour laws. It is important to first note that a worker is presumed to be an employee, and the employer has the burden to prove otherwise.
To show that a worker is an independent contractor, an employer needs to prove all the below:
(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, and
(C) “the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.” Dynamex Operations W. v. Superior Court (2018) 4 Cal. 5th 903, 964.
Complying with Employment Law
The new ABC test has made independent contractor classification even more difficult for California businesses. To name just a few of the potential consequences, mis-classifying independent contractors exposes businesses to:
- Unpaid overtime
- Missed meal break and rest break claims
To avoid violating wage and hour laws, businesses must understand the ABC test and the applicable wage order. Wage orders are published by the state of California, and they vary by industry. They inform businesses of things like how to pay overtime, and when to give rest and meal breaks.
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