Have you heard about the ABC test for independent contractors in the State of California? Does your company use 1099 workers and independent contractors as part of your overall business strategy? How will recent changes in California labor laws create substantial financial risk and potentially threaten the life of your business? This is a serious game-changer and the risks for any San Diego business with 1099 workers cannot be overstated.
The California Supreme Court released its opinion in the case of Dynamex Operations West, Inc. v. Superior Court (often referred to simply as “Dynamex”) and it substantially changes the equation for 1099 workers and employment in California.
The first impact of this decision is a fundamental change in how California will classify employment. Dynamex creates a new presumption that any California worker is an employee. Take a moment to let that set in. In other words, anyone who does any work for your company is to be an employee under California law unless your company can prove that the work qualifies as an independent contractor under a new “ABC” Test:
A. “that the worker is free from control and direction over performance of the work both under the contract and in fact.” and
B. “that the work provided is outside the usual course of the business for which the work is performed,” and
C. “that the worker is customarily engaged in an independently established trade, occupation or business.”
The second provision above (B) in the new ABC test for independent contractors makes it extremely difficult to classify most present 1099 workers as an independent contractor. What this leg basically means is an independent contractor may not perform any work which is essentially part of your actual business. Work is performed by employees under the new California law. The ruling specifically provides the example of a plumber doing work for a corporation. For most businesses, plumbing has nothing to do with the nature of their business and therefore the work could be conducted as an independent contractor. However, a plumbing company may not hire a plumber as an independent contractor because of the nature of their business. All plumbers in a plumbing company must be classified as employees.
Have you heard about the ABC test for independent contractors in the State of California and are you concerned about compliance and the impact it will have upon your company? You are right to be concerned. There are substantial risks and huge financial penalties you need to understand and take action to avoid. We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
