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California adopts ABC Test for gauging independent contractor classification

The California Supreme Court announced a new test for determining whether a worker is truly an independent contractor or an employee under California’s wage orders (regulating wages, hours and working conditions).

(I)n determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC” test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that 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 test continues California’s approach to scrutinizing whether the relationship includes a right to control and direct the work (test A) and whether the worker is engaged in an independent trade (test C), but adds a focus on whether the worker is doing “work that is outside the usual course” of the company’s own business (test B).

Companies that use independent contractors to do work that is within the company’s own “usual course” of work, much less that is being done by its own employees, should take special care to review this new test and determine if they are in compliance.

Source: Dynamex Operations v. Superior Court, case no. S222732 (Cal. 4/30/18).

New York cracks down on independent contractors

Effective May 15, 2017, New York enacted the “Freelance Isn’t Free Act,” which restricts a company’s right to enter into independent contracts. Restrictions include the requirement for a written contract, full payments within 30 days or by the deadline set forth in the written contract (for payments of $800 or more) and protection from retaliation.

Penalties include statutory damages, double damages, injunctive relief, and attorney’s fees. Individuals may sue to vindicate their rights in state court, and if satisfied there a pattern or practice of violations, the government can sue to recover a penalty up to $25,000.

Complaints can be filed with the state of New York, which can also assist individuals in navigating civil lawsuits.

Source: Freelance Isn’t Free Act – DCA