In its decision on April 30, the California Supreme Court established a new test for classifying workers as independent contractors, with significant implications for the so-called “gig economy.” In Dynamex Operations West, Inc. v. Superior Court of Los Angeles, the Supreme Court laid out the “ABC Test,” which presumptively considers all workers to be employees and permits an independent contractor classification only if the hiring entity can show that all of the following conditions are met:
- The worker has freedom from control or direction of the hiring entity over how to perform the work, both under contract and in fact;
- The service is outside the company’s usual course of business or outside of all the places of business for which the service is performed; and
- 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.
This new framework makes it significantly more difficult for companies to classify workers as independent contractors. While Part A of the test is nothing new, Parts B and C may present unique challenges, particularly for the gig economy, where companies use app-based technologies to facilitate the provision of services that are paid by the “gig,” or some other measure beyond a traditional wage per hour. Such businesses will likely contend that the services performed are outside their “usual course of business” because they are digital platforms facilitating the provision of services and payment by third party users, and do not themselves provide any actual services. Part C would appear to be equally problematic; however, companies might meet that standard by demonstrating that many of their users perform services for multiple platform providers at any given time, and are therefore independent of any particular provider.
The Court in Dynamex did not determine whether the workers in question were, in fact, employees or independent contractors under this new test; the case will instead return to the trial court, where the parties will continue to litigate the issues. Nonetheless, in light of the Court’s decision, all companies with employees in California should reevaluate their current employee classifications to ensure that they are compliant under the ABC Test.