California Employment Test Not As Easy as ABC

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From The National Law ReviewMichael W. Kelly and Gary M. Gansle discuss the recent California decision that introduced a new standard — the ABC test — for independent contractors. They review each of the prongs of the ABC test and the limited guidance provided by the Court. With respect to Part B, performing work outside they usual course of business, they say it may be the most difficult prong to predict the outcome. They write:

Part B – Does the worker perform work outside the usual course of the hiring entity?

Outcomes regarding this part of the ABC test may be the most difficult to predict, as the descriptions by the Dynamex Court are all over the field.  For example, initially the decision explains the goal of this part is to capture as employees “all individuals who can reasonably be viewed as working ‘in the [hiring entity’s] business” (emphasis in original).  Dynamex, at 69-70.  This general statement would be most troubling to insurers and real estate agencies, which depend on independent contractors who act exclusively as sales agents for those companies.  The Dynamex Court also described this factor as capturing “all individuals who are reasonably viewed as providing services to the business in a role comparable to that of an employee, rather than in a role comparable to that of a traditional independent contractor” (emphasis added).  Id.  In industries like real estate and insurance, where for many decades realtors and brokers have been independent contractors, an appeal to “tradition” is attractive for employing entities.  Unfortunately, California’s high court provided little instruction on this point, so it may be some time and many lawsuits before this issue is clarified.

The cases cited in Dynamex offer little guidance.  The Court cited at-home seamstresses, cake decorators, and lumber harvesters as examples of employees.  It contrasts those to a plumber hired to fix a leaky bathroom at a retail store.  It also distinguished the Vermont historic restoration specialist on the basis that historic restorations were not part of the employing entities’ general commercial or residential work.  In contrast, entertainers at a resort, which advertised live performances, should have been employees, as were art instructors at a museum.

It would be nice to think that California’s courts would at least follow the U.S. District Court of Massachusetts, which applied the ABC test and still found in favor of independent contractor status in 2015 in Ruggiero v. American United Life Insurance Co., 137 F. Supp.3d 104 (D. Mass. 2015).  In that case, American United Life Insurance argued its business involved drafting policy language, obtaining regulatory approval of policies, and investing premiums; it did not sell policies. The Massachusetts court agreed the company had not artificially attempted to deconstruct its business as some delivery companies had but rather, it had made a legitimate business decision to outsource sales of its policies.  It is worth noting not only was Mr. Ruggiero permitted to sell competitors’ policies, most of his sales were for others.

While a win for the employer, Ruggiero should sound cautionary notes for hiring entities that seek exclusive arrangements with sales brokers.  Also, entities which utilize a mix of employee sales personnel and independent contractors will no doubt find themselves at risk.

Read the full story at CaliFornia Employment Test Not As Easy as ABC

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