New IC Compliance Law for the State of California


The California Supreme Court established new jurisdictions regarding the qualifications of Independent Contractors (IC) in the state of California earlier this year. Instead of the common law test to determine IC status, they have adopted the “ABC Test” currently used in States such as Massachusetts, Indiana and New Jersey.

With the recent emergence of the “gig economy” and the utilization of free lancers, this ruling could either provide greater clarity to business using IC’s; or create a huge impairment for growth.  How will this ruling change business behaviors?

According to the Supreme Court’s opinion in the Dynamex case. Workers can only be classified as an Independent Contractor if they met the following:

  1. A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
  2. B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Many ICs today may not be compliant after this new test. California based companies that are looking to hire ICs, will need to follow the ABC test. Compliance Departments in these companies you will need to reclassify their ICs accordingly in order to remain compliant with California law. Companies will also want to keep in mind the federal wage and hour law, as well as, all state wage laws when testing IC status.

If your organization currently uses IC’s as part of your talent ecosystem, you may want to prioritize your engagement policy.  There are helpful tools available on line to assist, or contact us for additional solutions to mitigate your risk.