Home Business ManagementEmployment Law The ABC Test for Independent Contractors Is Not a Federal Rule

The ABC Test for Independent Contractors Is Not a Federal Rule

by Peggy Emch
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The California Supreme Court recently ruled on a change to the test that a hiring entity must use in order to determine if a worker is an independent contractor or not. It’s a much stricter and, as a result, clearer test than what existed before or which exists now with the Department of Labor. Worker classification is notoriously nebulous. Now in California, with the independent contractors ABC test, the definition is much easier to interpret.

ABC Test Factors

With the new ABC test, workers are considered employees by default. Companies must prove that contractors doing work for them are indeed contractors by establishing three factors to be true. The three factors are as follows:

A. The worker is free from the hirer’s control and direction in connection with performing the work, both under contract and in fact.

B. The worker performs work that is outside the usual course of the hirer’s business.

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.

Blurry Lines Are Clearer

Since all three of these must be true, it will be difficult, going forward, to misclassify workers by accident. Factor B, in particular, leaves very little wiggle room. For example, in the past, a salon might have employed a nail technician to work as a “contractor” in the salon. While this worker might satisfy factors A and C (although most likely only A), it isn’t likely that she would also satisfy factor B. The most likely scenario is that when the nail technician leaves the company the hirer hires for the vacant position. A nail technician is a regular presence at the salon and so hiring for that position is a regular occurrence.

The point of the independent contractor ABC test is to help ensure employee rights. Workers need to be treated as employees and get paid accordingly when they do the work of employees.

Contractors are now considered workers who do work that is not a part of normal business operations. This includes things like creating a website for the salon, managing advertising, or moving equipment.

The New Test Only Applies to California Workers

The new rule is clearly going to be helpful for employees. The lack of overtime wages and the myriad other benefits workers lose as contractors will make a lot of people happy. It will be good for employers too though. The more cut and dry rules will help employers avoid costly litigations.

While this test seems to be a positive move forward for both workers and employers, it is specific to California. However, with as difficult as it sometimes is to nail down worker classification, employers around the country could use this stricter test to feel confident about their classification decisions.

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