In today’s economy, staffing firms offer a valuable service to countless organizations for their hiring needs. This is especially true in the state of California, given that we have the fifth largest economy in the entire world and an accompanying unemployment rate of just 4.3% as of March 2018 according to the state Employment Development Department. Obviously, finding talent is becoming harder, and this becomes especially true if companies don’t even wish to hire individuals on a permanent basis and instead seek to hire independent contractors or temporary workers.
The value of an independent contractor can be beneficial in some ways. Companies don’t have to make a long-term commitment, they can achieve great cost savings from not having to pay unemployment insurance and benefits, and everything is defined via a contract. However, the distinction between an independent contractor and an actual employee was modified recently by a new court ruling in California that could significantly alter how companies approach hiring outside help in the state.
Last month, in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, the California Supreme Court reviewed an old process used to identify independent contractors versus employees known as the Borello test, and it was ultimately rejected in favor of a new form of classification known as the “ABC test.” Under the old Borello test, it was easier to hire independent contractors because the threshold for a worker to be defined as one was simpler to reach. Specifically, a worker was viewed as an independent contractor if “whether or not the company has the right to control the manner and means by which the worker performs the work. The analysis also considers various secondary factors, including the degree of skill required to perform the work, the method of payment, and the nature of the company’s regular business” (Paul Hastings LLP. Preparing for Dynamex: California Supreme Court Set to Decide Legal Standard for Determining Independent Contractor Status. Lexology. April 2018.)
Now, a new test has been implemented in favor of Borello. The “ABC test” is simpler to interpret, but it will make it more difficult for companies to hire independent contractors because the threshold will be harder to reach.
Our next blog will review the new three-part “ABC test” in detail.