Episode 20: ABC Test – Independent Contractor vs Employee Classification

On this week’s episode of the CCO Buzz we discuss a recent issue regarding independent contractor and employee classification, noting that firms need to keep this matter top of mind as 2018 progresses.




CCO Buzz: Hello and welcome back! On episode 20 of the CCO Buzz we’ll be doing things a bit differently – we have a Senior Compliance Consultant joining us. He’ll be with us discussing a detail that firms will want to keep top of mind as we begin Q4 of 2018.

Thank you for joining us today on the CCO Buzz. So, what did you want to bring to light today for our audience?

Senior Compliance Consultant: Today we are going to be talking about a recent California court decision. And I want to preface by saying that this is not intended to be a legal discussion, but we realize that a lot of our clients wear multiple hats and have to look at things that go beyond the scope of just regulatory compliance at times – and that’s what this discussion is going to be focusing on today.

CCO Buzz: Wow, ok… a bit different, but sure- let’s go with it. How did this come about?

Senior Compliance Consultant: Recently, there was a California court decision by the name of Dynamex Operations West, Inc v. Superior Court of Los Angeles that examined how California companies should by classifying employees versus independent contractors.

CCO Buzz: So, what exactly came from that decision?

Senior Compliance Consultant: The court replaced the old test for determining whether or not someone should be classified as an independent contractor or an employee pursuant to the Industrial Welfare Commission (“IWC”) rules.

Basically, the court took out the old practices of having a weighted test and replaced it with an “ABC Test”, so to speak. So, it’s a three-prong test that you want to look out now to determine if someone should be classified as an independent contractor or an employee.

CCO Buzz: So, what does this test entail?

Senior Compliance Consultant: So, within this new test employers must start with the presumption that every worker is going to be an employee and then they have a burden to disprove that the individual shouldn’t be classified as an employee but rather as an independent contractor. And to do that, there’s three prongs they are going to have to examine.

The first one is pretty familiar, and you just have to establish whether the firm is really controlling the individual. That tracks pretty well with the old test.

The second prong, however, states that the worker has to be doing services that are outside the scope of the hiring entity’s profession. Exactly, how far outside that person needs to be is unknown. So that’s very broadly applied.

The final one is also a hard presumption to overcome and that the worker has to be involved in a separate established practice or profession; and not in the same nature of work as hiring entity.

So those last two prongs are going to make it really difficult for firms to just classify folks as independent contractors as opposed to employees moving forward.

CCO Buzz: But what does this mean for companies at this point?

Senior Compliance Consultant: We really just encourage firms to revisit and examine their use of independent contractors. Look at your agreements. Look at the practices beingbo done at the firm and see whether or not those fall in line with this new test.

CCO Buzz: Ok. Well, thank you so much for speaking with us today. Is there anything else you’d like to add?

Senior Compliance Consultant: For more information or if you have any additional questions on this or other topics, please contact us at (619) 278-0020. Thanks so much.

CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn or Twitter @CoreCLS. Thank you and we hope you tune into next week’s episode of the CCO Buzz.


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