California’s statutory “ABC test” for classifying workers as independent contractors (I/Cs) – enacted in 2019 — is among the most restrictive in the nation:

(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; and
(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.

Point B is the kicker.  No matter a worker’s lack of supervision or his/her clearly separate pursuit of a trade or business, that person is the hiring business’s employee if performing any of the central functions of that enterprise.

As this “innovation” in the law threatened to wreak havoc in numerous industries and professions classifying independents by the traditional balancing of control factors, the legislature has tempered the test with numerous exceptions, e.g., the building trades and law practice. See articles referenced below.

Any worker falling within an ABC test exception must yet satisfy the extensive, long- standing state and federal criteria to establish his or her independence, including the IRS factors and numerous rulings.

Now add to those standards the federal Department of Labor’s (DOL) Final Rule, effective March 11, 2024, for I/C classification under the Fair Labor Standards Act.

The DOL’s Fact Sheet 13 sets out the Final Rule’s six primary, equally weighted factors to determine whether a worker is economically dependent on the hiring entity (employer):

1. The worker’s opportunity to profit or lose from the relationship based on the worker’s managerial skill, including:
   • Ability to negotiate payment for work;
   • Marketing and other efforts by the worker to expand the worker’s business;
   • Worker choice on whether to accept jobs and when to do them;
   • Worker decision-making on hiring, renting space, and obtaining equipment and materials;

2. Relative investment by the hiring entity and the worker, including the latter’s purchase of tools and other investments to support the growth of his/her own business;

3. The relative permanence of the work relationship — sporadic work, specific projects, and a worker’s non-exclusive relations with the hirer support I/C status;

4. The nature and degree of control exercised by the hiring entity over the worker — imposing hours and supervising worker performance look like employment;

5. Whether and to what extent the worker’s duties and labor are an integral part of the hiring business. The greater centrality, the more likely it’s employment.  Someone painting a paint store’s walls is less like an employee than the person hired to sell the paint; and

6. A worker’s a high level of skill and initiative to perform the work can support I/C status.

Take-Aways:   Correct classification of independent contractors is always a case-by-case inquiry through a morass of state and federal criteria, best navigated with the aid of a skilled management-side employment attorney.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• Employee or Independent Contractor? Employers Who Misclassify Workers Put Themselves at Risk (September 16, 2022)
• California’s Newest Independent Contractor Law Part 5 – New “Music and Entertainer” Exemption from the Strict “ABC” Test (October 29, 2020)
• California’s Newest Independent Contractor Law Part 4- Amateur Umpires and Referees Among Expanded “Specified Occupations” Exceptions to Strict Test (October 22, 2020)
• California’s Newest Independent Contractor Law Part 3 – “Fine Artists” and Other Clarified and Expanded Professional Services Exemptions (October 10, 2020)
• California’s Newest Independent Contractor Law Part 2 – Revised Referral Agency Exception (September 24, 2020)
• California’s Newest Independent Contractor Law Part I – Revamped Business-To-Business Exceptions (September 17, 2020)

Helena Kobrin
Tim Bowles
April1 5, 2024