EDD sticking with common law test, while WSTA looking to throw out ABC Test
In this two part article, I discuss two matters concerning the test for independent contractorship that should be of major interest to all trucking companies in California.
The California EDD will continue to use the “common law”/ a.k.a. “Borello” test to determine whether drivers are independent contractors.
Recently, in the course of an EDD audit with a client, the EDD auditor advised me that at this time, EDD is going to continue to utilize the Borello or “common law” test to determine whether a driver is an independent contractor. In other words, The California EDD is not utilizing the ABC test as stated in the recent CA Supreme Court Dynamex decision to determine whether a driver is an independent contractor.
The Borello test utilizes a number of factors to determine whether a worker is an independent contractor. Under Borello, the primary consideration is the degree to which the principal has the right to control the manner and means by which the work is accomplished. While the right of control is the most important factor, the following secondary factors are also relevant:
(1) whether the worker is engaged in a distinct occupation or business;
(2) as a matter of local industry custom and practice, whether the type of work performed is typically done under the direction of a principal or by a specialist without supervision;
(3) the skill required in the particular occupation;
(4) whether the principal or the worker supplies the tools and place of work;
(5) the length of time for which services are to be rendered;
(6) whether or not the work is part of the regular business of the principal; and
(7) whether or not the parties believe they are creating the relationship of employer-employee.
The California EDD has developed a handbook that auditors utilize, which is based on the common law test. The EDD handbook focuses on these factors:
(1) Instructions: Are detailed instructions provided to the worker?
(2) Training: Is training provided?
(3) Integration: Is the work integrated into the principal’s business?
(4) Services Rendered Personally: An individual’s right to substitute another’s services without the employer’s knowledge suggests the existence of an independent relationship.
(5) Hiring Assistants: An IC hires, supervises and pays assistants
(6) Continuing Relationship: The existence of a continuing relationship between an individual and the person for whom he or she performs services indicates an employer-employee relationship.The relationship between an
independent contractor and his or her client ends when the job is finished.
(7) Set Hours of Work: An independent contractor is the master of his or her own time.
(8) Full-Time Work: An independent contractor is free to work when he or she chooses and to set his or her daily or weekly schedule. An independent contractor would normally perform services less than full-time for one principal.
(9) Is the work done on the premises: Work done away from the employer’s premises indicates lack of control, especially when the work is free from supervision.
(10) Order or sequence: Does the person have to perform the services in an order or sequence, set by the employer?
(11) Reports: An independent contractor is not required to file reports which constitute a review of his work.
(12) Payments : Payment of an IC is on a job by job basis.
(13) Expenses: An IC is responsible for all of his own expenses.
(14) Tools and materials: A worker furnishes their own tools and materials, especially when a substantial sum is involved, is an indication of independence.
(15) investment: significant investment by the worker in facilities used by him and performing services for another tends to show an independent status.
(16) Profit and loss: if there is a possibility for profit or loss for the worker as a result of their services, this reflects independence.
(17) Works for others: working for other persons or firms indicates independence, because the worker is free to accept or reject jobs.
(18) Offers services to general public: availability of services to the general public usually indicates independence.
(19) Right to fire/right to quit: And IC cannot be discharged as long as he produces a result that measures up to his contract specifications. Also, an independent contractor usually agrees to complete a specific job and cannot quit until the job is completed.
(20) Industry custom: if the work is usually performed by independent contractors, it is an indication of independence.
(21) Required level of skill : a high-level of technical skill is important when combined with other factors such as owning a separate and distinct business.
(22) Belief of parties: do all parties agree that the relationship is one of independence
As most of my reader should know, the common law test is a much more forgiving than the new ABC test, and under the old “Borello”/common law test, owner-operators can legally be classified as independent contractors. Of course, under the Dynamex ABC test, independent contractor/owner-operators simply cannot legally exist.
WSTA looks to overturn Dynamex in the federal courts.
The WSTA has filed a lawsuit against the Department of Industrial Relations, and the Attorney General of California, contending that the ruling in Dynamex is unconstitutional, and is preempted by the federal aviation administration authorization act (FAAAA), and furthermore violates the commerce clause of the United States Constitution, because it discriminates against out of state transportation companies that send trucks into California. Finally, the plaintiffs also contend that the decision is preempted by the regulations of the Federal Motor Carrier Safety Administration (FMCSA). The full complaint can be found here.
The ABC Test (A quick refresher)
The incredibly harsh ABC test requires a company using an independent contractor certify that:
A That the worker 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 That the worker performs work that is outside the usual course of the hiring entity’s business
C That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
“Most legal analysis of the ruling agrees the A-B-C test sets an impossible standard for most of our members to meet,” WSTA stated to its members back in May. According to Rob Moseley, an attorney with Smith Moore Leatherwood, it’s the “B” part that is problematic. “If you’re in the trucking business, it’s going to be a very difficult fight, because the ‘B’ prong of the A-B-C test basically says… the contractor has to be in a different business. They can’t be in your business.” See the full article here.
OK with EDD, OK with the Feds, Not OK in a CA wage and hour lawsuit
One of the points that is so crazy about the new ABC test and Common Law test being used in different settings, is that an owner-operator truck driver may be an independent contractor in the eyes of EDD, the Federal government, the United States Department of Labor, even the IRS, yet, be considered employees at the California labor board, or in a California wage and hour lawsuit brought by plaintiff’s attorneys who sue businesses alleging labor code violations. Hopefully, the WSTA lawsuit will bring consistency (and sanity) back to the trucking industry.