Last week, the California Supreme Court adopted the “ABC” test – a test utilized in other jurisdictions – for determining “employee” versus “independent contractor” status in California.  Prior to last week’s decision, California companies utilized a multifactor test, which (along with additional factors) focused primarily on whether the company had control over the individual and the means by which the work was performed.

New ABC Test.  Under the new test, workers are presumed to be employees, unless a company can satisfy all of the “ABC” conditions:

• Part A – The worker is free from the control and direction of the company in connection with the performance of the work, both under the contract for the performance of such work and in fact.
• Part B – The worker performs work that is outside the usual course of the company’s business.
• Part C – The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.

Impact For Employers.  The new ABC test likely will make it harder for companies to classify workers as independent contractors.  Under the new test, individuals previously classified as independent contractors may now have to be reclassified as employees.  This means that any company engaging independent contractors in California will face increased exposure to claims relating to:

• California’s minimum wage, overtime, and break time rules.
• California’s state and local paid sick leave laws and state or local laws regulating vacation time and other types of leave.
• The company’s vicarious liability for an employee’s negligence.

While it is not clear at this point, the new ruling may increase exposure and expense related to employment tax reporting and withholding obligations with respect to reclassified employees.

Contact Information.  For more information, please contact Don Mazursky (404.888.8840), Randall Constantine (404.888.8877), Emily Friedman (404.888.8871) or Alex Smith (404.888.8839).