Q: In your Sept. 23 Legal Briefs column, "7 criteria for exemption under Calif. IC bill," you explained how my agency's California independent contractors (ICs) could escape the application of the Dynamex case, which adopted the dreaded "ABC test" for IC relationships. Would you please review the ABC test? Have any federal agencies adopted it, such as the IRS or Department of Labor? How many other states have adopted the ABC test?
A: The ABC test means that the relationship between the worker and the company retaining him or her must meet all three parts (i.e., parts A, B and C) of the following test:
- Part A is that the worker must be free from direction and control in the performance of the service, both under the parties' contract and in practice.
- Part B is that the worker's services must be performed either outside the usual course of the employer's business or outside all of the employer's places of business.
- Part C is that the worker must be customarily engaged in an independently established trade, occupation, profession or business.
In California, the state Supreme Court modified Part B to eliminate the second option; it doesn't matter where the worker works. All that matters is that the worker and the company cannot be in the same business.
The court's change to the traditional wording of Part B is what caused the crisis that led to the successful enactment of the exemption for travel advisors. That exemption states that if you meet seven criteria, the ABC test won't apply, and you can therefore be in the same business as your ICs.
No federal agency has adopted the ABC test, so you don't need to worry that the IRS might reclassify your ICs as employees merely because you are all in the same line of work and the ICs work in your office.
Aside from California, more than half of the states use some form of the ABC test, including Alabama, Connecticut, Colorado, Delaware, Georgia, Hawaii, Illinois, Idaho, Indiana, Louisiana, Maryland, Massachusetts, Mississippi, Nebraska, Nevada, New Hampshire, New Jersey, Ohio, Pennsylvania, Vermont, Washington and West Virginia.
Unfortunately, a simple list of states presents no less than three main complications. First, not every state uses the ABC test for all purposes. For example, some states use it for purposes of qualifying for workers' compensation or unemployment insurance but not for wage and hour entitlements or for withholding taxes, and some states do the opposite.
The second complication is that the test is not exactly the same in all states that use it. For example, as you know, in California it does not matter where the worker works, but in other states you can pass Part B by merely working outside the company's premises.
Finally, states' legislatures and courts change the tests from time to time, so you need to check with an employment law attorney in your state to make sure that you learn the latest tests in effect and then try to make sure that your IC relationships meet those tests.