Employment Relationship – Legal Test to Determine Employment Status

Traditionally, there have been three primary tests used to determine whether a person is an employee or an independent contractor. Different agencies and different courts have adopted different tests based on the specific statute or type of law being applied.

In California those tests included:

1. The common law test;

2. The California Employment Development Department’s (EDD) control test;

3. The California Supreme Court’s Borello test; and

4. The California Supreme Court’s Martinez v. Combs test.

In Dynamex Operations W. v Superior Court (2018) 4 C5th 903, the California Supreme Court adopted the "ABC test" for determining whether a worker is an employee or an independent contractor for purposes of the Industrial Welfare Commission's wage orders.

In the Federal arena the following tests are used:

1. The common law test;

2. The “economic realities” test;

3. The “hybrid” common law and economic realities test;

4. The IRS ”20 Factor” control test, including IRS refinement to the test;

5. The United States Equal Employment Opportunity Commission (EEOC) test; and

6. The United States Department of Labor (DOL) test.

For all of the tests, the most significant issue is determining independent contractor status is the amount in which the business maintains control over the manner and means of accomplishing the work. Where the contractor maintains control over the details of how the work is performed/completed, as distinct from the end result only, the independent contractor status is recognized. Where the business retains control, an employer/employee relationship is recognized.

Each test listed above lists several factors to be considered when determining the status of an independent contractor, but not all factors need to be present. The tests view each factor with different weight as to how important the factor is in determining the status. The amount of weight but to the different factors are subjective and will depend on the court or agency. Each agency publishes an information sheet or fact sheet to help you review their view on the tests.

The best practices for a business is to retain counsel to help determine the status of a contractor. A classification decision cannot be determined based on isolated factors but is based on the entire relationship. Counsel can help you assess that relationship as a whole.

Useful Links:

DIR Independent contractor versus employee https://www.dir.ca.gov/dlse/faq_independentcontractor.htm

EDD Employment Determination Guide http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf

Fact Sheet #13: Employment Relationship Under the Fair Labor Standards Act https://www.dol.gov/whd/regs/compliance/whdfs13.htm

Independent Contractors https://webapps.dol.gov/elaws/whd/flsa/docs/contractors.asp

DOL FAQ https://www.dol.gov/ofccp/regs/compliance/faqs/EmpRelationship.html

IRS https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

https://www.calchamber.com/california-employment-law/pages/independent-contractor.aspx