Independent contractor status was in the news quite a lot last year, with AB5 coming into force and Proposition 22 dominating headlines for a large portion of the year. A recent California Supreme Court case has again put independent contractors back in the spotlight – with the ABC test being applied retroactively to certain pending cases. This update provides answers to some FAQs about AB5 and the ABC test in California:
What is Dynamex and the ABC Test?
The California Supreme Court first adopted the ABC test in 2018 in a court case often called ‘Dynamex’, an abbreviation for Dynamex Operations West, Inc. v. Superior Court. The test for determining that a worker is an independent contractor is:
A) The worker 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 worker performs work that is outside the usual course of the hiring entity’s business; and
C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
You can read more about the test here.
What’s the difference between Dynamex and AB5?
When courts create a test, it doesn’t automatically make its way into a legal bill. AB5 codified the test from Dynamex into law so it now forms part of the regulatory landscape.
Which workers are now exempt from the ABC test for determining independent contractor status?
AB5, AB2257, and Prop 22 outline exemptions to the ABC test adopted in AB5 for classifying independent contractors.
Proposition 22 exempted ‘Delivery Network Companies’ from AB5. You can find the exemptions outlined in AB2257 here and the exemptions for professional services providers detailed in AB5 here.
Are exempt workers automatically deemed independent contractors?
No, an exemption under AB5, Prop 22, or AB2257 doesn’t automatically mean that a worker is an independent contractor. If an exemption applies, you will usually need to apply the Borello test to determine whether the worker is a contractor or an employee. There are some occupations and some industries where the entity needs to meet certain requirements before applying the Borello test.
The Borello test focuses on which party has control over the manner and means of accomplishing the work, where control need not be direct, actually exercised, or detailed. It is a less restrictive test than the ABC test. You can read more about the Borello test and the occupations and industries which are exempt here.
Does AB5 apply to out-of-state contractors?
No, it only applies to contractors who are located in California. You’ll need to apply the laws of the state the contractor is located in to ascertain their correct status.
If you need help classifying your workers, reach out. We’re here to help.
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