Effective January 1, 2020, all State of California employers will need to test all vendors deemed independent contractors according to the new Gig Economy Law (AB5). The California Supreme Court unanimously announced a new test for determining whether a worker is an employee or an independent contractor in the landmark decision of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018).
The Supreme court cited several reasons for its decision to implement a new test:
- Misclassified workers lose significant workplace protections.
- State revenues decreased as a result of corporations not paying payroll taxes, social security, contributing to unemployment insurance, collecting short-term disability, and paying premiums for workers compensation.
- Erosion of the middle class; increased income equality
The test
Under the new ABC test, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
