Te Dynamex court implemented a streamlined ABC Test with a presumption that an individu- al is an employee, unless all three prongs of the test are met. AB 5 codified the Dynamex hold- ing to make it crystal clear that in California, you’re an employee unless proven otherwise. It also confirmed that when the ABC Test cannot be applied because of unique circumstances, the Borello test will apply.
Te ABC Test requires an employer or hiring party to demonstrate: (A) the worker is free from the control and direction of the hiring party, under contract and also based on the actual facts of their work, (B) the worker per- forms work that is outside the normal course of the hiring party’s business, and (C) the worker is customarily engaged in an independently established business or trade from the hiring party. If any part of the test is disproven, the worker is an employee.
most associations have a manager or other type of ser- vice provider (e.g. janitor, maintenance person, land- scaper, security or patrol officer, valet attendant, etc.) who exclusively serves the community as an indepen- dent contractor. In the best of circumstances, these in- dividuals (or entities) have an agreement that states they are an independent contractor and lists their duties and payment arrangements. In some circumstances, these “independent contractors” may not have a contract and rather simply provide their services and receive their pe- riodic payments. While the parties may be happy with the arrangement, following AB 5 and the Dynamex rul- ing, boards should evaluate all their service providers to see whether they pass the ABC Test.
Let’s dig into the ABC Test and how it applies in common interest developments. Prong A requires the worker to be free from the control and direction of the hiring party. Its not enough to have an agreement that states they are free from the board’s control; they must actually be free from the board’s control. Boards need to evaluate whether they are overseeing and directing how a service is carried out. Tis doesn’t mean they cannot provide input or set a standard for the service provided, rather, it means they cannot microman- age and dictate how things are to be done. For some boards, this may be a difficult hurdle to jump. Te im- portant take away is not interfering with how services are provided.
Te Dynamex court cited numerous public policies as the basis of its decision, including the unfair competitive advantages companies had by misclassifying workers as independent contractors, the substantial lost revenue to the state and federal governments in connection with unpaid employee taxes, and most impor- tantly the loss of important state and federal rights and protections employees are afforded that do not extend to independent contractors. For example, employees are protected by vari- ous wage and hour laws, their employers pay employment taxes on their behalves, and they are entitled to workers compensation and un- employment benefits.
Some boards may be asking, how on earth does this affect my community? Te reality is that
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Prong B of the ABC Test is the most problematic for community associations because it requires a worker to perform work that is outside the normal course of the hiring party’s business. Given the infancy of AB 5, there’s little case law for how this will be evaluated. In a broad interpretation, under most governing docu- ments, common interest developments are responsible to manage, maintain, and oversee the community. Un- der the law, associations are required to communicate with owners and residents. In an expansive interpreta- tion of what’s included in the hiring party’s normal course of business, there could be little room for in- dependent contractors. It is too early to determine how narrowly or broadly the courts will analyze this prong. Tere are a few exempted professions where the ABC Test does not apply, but most will not pertain to community associations unless they have a full-time independent contractor accountant or attorney. Te important take away is clearly distinguishing between the service provided and how that is merely ancillary to the association’s core functions.
Prong C requires that the service provider be engaged in an independent trade, occupation, or business. Tis
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