Dynamex ABC Test
The California legislature passed AB 5, which was signed into law by Governor Gavin Newsom in September 2019. The law went into effect in January 2020. The law is sometimes referred to as the “gig worker bill”.
AB 5 creates a three-part test, called the “ABC test”, for determining whether a worker is to be legally classified as an employee or an independent contractor under the law. The new “ABC test” was actually previously outlined by the California Supreme Court in a case called Dynamex v Superior Court. This new law will require many California employers to reclassify their independent contractors as employees. The law could affect such occupations as Uber and Lyft driver, as well as many more.
Under the new “ABC test”, a worker may be properly classified as an independent contractor only if the employer is able to show all of the following three items:
- That the worker is free from the control and direction of the employer in connection with the performance of the work;
- that the worker performs work that is outside the usual course of the hiring entities business; and
- that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the employer. This test assumes that workers are actually employees until the employer can prove that they are independent contractors instead.
The first part of the test, the “A” part, looks to see how much control the employer has over the worker. If the employer has control over the worker, then the employer will not be able to meet the first part of the test and thus the worker will be legally considered to be an employee. However, if the employer has no control over the worker, then the employer may be able to satisfy this first part of the test, but must also prove B and C for the worker to be considered an independent contractor.
The second part of the test, the “B” part looks to see if the worker does work that is different than what the employer’s business normally does. If the worker is doing work that is the same type of work as what the employer’s business normally does, than the worker will more likely be considered an employee. If, on the other hand, the worker does work that is different from what the employer’s business normally does, than the worker will more likely be considered an independent contractor - but only if the employer can show that all three parts of the test are satisfied, not just part B.
The third prong (the “C” prong) requires that the worker is already in business for themselves and works in a customarily independent fashion to be considered an independent contractor. The court in the Dynamex case said that to be an independent contractor, the worker must have “independently made the decision to go into business for himself or herself”. So if your employer forces you to start your own corporation, then pays the corporation as an Independent Contractor, that probably won’t work and you may still be considered an employee under the new ABC test.
The ABC test is the new test for determining whether workers must be paid as employees or independent contractors. Employees are legally entitled to minimum wages, overtime, workers compensation, unemployment and disability insurance, paid sick days, and family leave. However, independent contractors are not entitled to minimum wages, overtime, workers compensation, unemployment and disability insurance, paid sick days, or family leave.
Many employers will try to misclassify a worker as an independent contractor in order to avoid paying such things as minimum wages, overtime, workers compensation, unemployment and disability insurance, paid sick days, or family leave. But remember, that in order for the employer to properly classify you as an Independent Contractor, the employer must prove all 3 prongs of the ABC test, not just one or two. In other words, the law assumes you are an employee until your employer proves all 3 parts of the ABC test. If you believe your employer has misclassified you as an independent contractor, call us today because you could be misclassified as an independent contractor when really you should be paid as employee.
It should be noted that the ABC test under AB 5 does not apply to many occupations, such as doctors, dentists, accountants, brokers, lawyers, architects, engineers, psychologists, investment advisors, direct salespersons, private investigators, commercial fisherman and select other professional service providers such as real estate agents, barbers, cosmetologists as well as many others.