October 26, 2018

New “ABC” Test Applies Only to Wage Order Claims, Rules California Appellate Court’s Fourth District

Companies can continue to rely on the broader, more company-friendly Borello standard for non-wage order claims, as the new “ABC” test applies only to claims brought under wage orders, the California Appellate Court’s Fourth District ruled Monday in Jesus Cuitlahuac Garcia v. Border Transportation Group, LLC, et al., Case No. D072521.

The “ABC” test, an employment-classification test in California that presumes workers are employees rather than independent contractors, was first adopted in April 2018 by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court. Under this test, the burden is on the employer to demonstrate that every worker is not an employee by proving all three of the following:

  • The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact.
  • The worker performs work that is outside the usual course of the hiring entity’s business.
  • 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.

The appeals court in Jesus Cuitlahuac Garcia said it was “logical” to apply the “ABC” test to wage orders because they define “employment” broadly and “regulate very basic working conditions for covered California employees,” suggesting courts should err on the side of extending employment protections.

For claims not brought under wage orders (such as claims based on labor statute violations), courts should continue to rely on the more flexible multi-standard test adopted by the California Supreme Court in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, the appeals court said, explaining that there “is no reason to apply the ABC test categorically to every working relationship.”

The Borello standard considers factors such as the worker’s investment in tools used, the method of payment, the degree of permanence of the relationship, and the parties’ intention regarding the relationship when determining whether a worker is properly classified as an employee or an independent contractor.

The panel mentioned in a footnote that it’s an open question in California whether the “ABC” test applies retroactively. But because the parties’ appeal briefs “implicitly assume retroactivity,” the question did not need to be answered in Monday’s ruling, the appeals court said.

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