Kelly A. Knight is an attorney and mediator based in Los Angeles, CAlifornia. He handles matters throughout California.

Court of Appeal: Dynamex ABC test limited to claims under the Wage Orders, otherwise Borello factors apply; worker must actually be engaged in independent business to be an independent contractor.

Dynamex is now the law of the land in California: California workers are presumptively employees for purposes of the Wage Orders; to overcome that presumption, hirers are required to meet the incredibly broad and difficult-to-overcome “ABC test” in order to establish that the worker is an independent contractor. The next big question was whether the ABC test would apply outside the Wage Order context.

The Court of Appeal in Garcia v. Border Transportation Group, LLC, 2018 WL 5118546 (Cal. Ct. App. 4th Dist. no. D072521 (Oct. 22, 2018), as modified (Nov. 13, 2018)) (slip op. linked here), held that the ABC test applies only to claims under the Wage Orders, while the multifactor Borello test applies to other claims. The court also held that part C of the test requires that the employer show the worker was actually engaged in an independent business for himself or herself—not merely that the worker had the ability to do so.

The ABC test was established by the California Supreme Court in Dynamex Operations West v. Superior Court, 4 Cal. 5th 903 (Apr. 30, 2018) (read my discussion of Dynamex here). Under the ABC test in misclassification cases, in determining whether the defendant “suffered or permitted” the work (which establishes an employment relationship under the Wage Orders), all workers in California are presumed employees, and the burden is on the employer to overcome the presumption by proving that (A) the worker was actually free from control and direction re the performance of the work, (B) the work performed is outside the hirer's normal usual course of business, and (C) the worker is customarily engaged in an independent business of the same nature as the work performed. Dynamex, 4 Cal. 5th at 916-17, 957.

As many are now aware, this is a broad expansion of worker protections, making it much harder for employers to prevail in employee-versus-independent-contractor misclassification cases.

First, let’s summarize the major holdings of the case, and then we’ll move on to the facts and application.

Holding 1: the ABC test applies only to claims under the Wage Orders.

One major question after Dynamex was whether the ABC test would apply to claims other than those brought for violation of the Wage Orders. After all, the Borello factors (S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989)), which were used before the Dynamex ABC test, initially were established for determining the existence of an employment relationship in the worker’s compensation context.

But the use of the Borello factors has since been expanded well beyond that context, often discussed by courts as one common-law standard or test for determining the existence of an employment relationship. See, e.g., Dynamex, 4 Cal. 5th at 945 (Borello factors have been applied to many contexts); Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522 (2014) (applying the Borello factors in a wage-and-hour class action on existence of employment relationship for certification purposes). Would the ABC test likewise be applied in other contexts?

 The answer, at least right now, is no. The Garcia court held that the ABC test applies only to claims brought under the Wage Orders and derivative claims (e.g., the Garcia court applied this holding to the plaintiff’s claim for unfair competition under Business & Professions Code section 17200 et seq., since that claim was premised on violations of the applicable Wage Order).

Holding 2: under part C of the ABC test, the employer must demonstrate that the employee is currently involved in an independently established trade or business—not that the employee is merely capable of doing so.

This holding is also a big one. While some workers who are classified as independent contractors could be engaged in their own business if they wanted (e.g., think truck drivers who drive for one company but who might also drive for others, assuming they are allowed to), the fact that they don’t and only work for that one hirer can now be dispositive under part C of the ABC test.

Let’s take a closer look at the case.

Garcia was a taxi driver in the City of Calexico. He bought his own car that was marked “Calexico Taxi” (the name that the defendants’ taxis used), and he leased a taxi vehicle permit from one the defendants and paid an additional amount for radio dispatch service. The lease agreement labeled him an independent contractor. After several years, his car broke down, and he began leasing a vehicle directly from one of the defendants. Slip op. at 4-5.

Garcia later filed a civil action that alleged both wage-and-hour claims and wrongful termination in violation of public policy. The defendants moved for summary judgment, arguing that Garcia was an independent contractor under Borello. The defendants submitted a declaration swearing that they did not control Garcia and that “Garcia and others remained free to set their hours, use the car for personal errands, decline the optional radio dispatch service, keep their collected fares, enter into sublease agreements, hold other jobs, advertise services in their own names, etc.” Id. at 6. The trial court granted summary judgment, ruling that Garcia was an independent contractor. Id. at 7. Garcia appealed.

After briefing on appeal was complete, the California Supreme Court issued its opinion in Dynamex; the Court of Appeal invited supplemental briefing on what impact Dynamex would have on the appeal. Id. at 8.

First, the Garcia court held that the Dynamex ABC test applies to claims under the Wage Orders, but the Borello standard applies to non-Wage Order claims. Slip op. at 22.

Some of Garcia’s claims arose under the applicable Wage Order (i.e., claims for unpaid wages, minimum wages, meal-and-rest-period violations, wage-statement violations, etc.)—the ABC test applies to those claims.

But Garcia’s other claims did not (i.e., claims for overtime violations, which do not apply to taxicab drivers under Wage Order 9; wrongful termination in violation of public policy; and waiting-time penalties). The ABC test does not apply to those claims, and instead the Borello standard must be applied to determine the existence of an employment relationship in adjudicating those claims. Id. at 23.

Second, under part C of the ABC test, the employer must establish that “the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.” Slip op. at 19, quoting Dynamex, 4 Cal. 5th at 957. The Garcia court held that part C of the test “requires that the worker is engaged [i.e., currently] in an independent business, not that he or she could have become so engaged.” Slip op. at 20 (italics in original).

Although Garcia leased a taxi permit from the defendant and therefore drove only under that specific company’s permit, the dispositive question is not whether the hirer required the worker to work exclusively for the hirer and thereby prevented the worker from working in an independent business. Id. Instead, the question is whether the worker has actually and independently made the decision to go into business for himself or herself. Id. The Garcia court held that “Dynamex requires more than mere capability to engage in an independent business.” Id. at 28.

Because the defendants presented no evidence that Garcia in fact provided services for other entities independently of his relationship with the defendants, the defendants could not meet part C of the ABC test. Id.

Accordingly, the Garcia court reversed the trial court’s ruling on the Wage Order claims, holding that there was a triable issue whether Garcia was an employee under the ABC test. Id. at 24, 28.

On the other hand, since the Garcia court concluded that the Borello standard does apply to Garcia’s non-Wage Order claims, it also concluded that the trial court applied the correct standard on those claims. See id. at 29. Unfortunately for Garcia, the appellate court held that he forfeited any argument on the non-Wage Order claims because he (i.e., his counsel) failed to include any record citations regarding why there is a triable issue on the non-Wage Order claims under the Borello standard or argue why the trial court’s reasoning was wrong:

Crucially, Garcia's argument fails as to the non-wage-order claims because he cites no admissible evidence to show how or why the court erred. . . . Although we review a grant of summary judgment de novo, that does not relieve Garcia of the duty to demonstrate error or obligate us to cull the record in attempt to uncover a triable issue. . . . By failing to cite admissible evidence and explain why that evidence creates a triable issue of fact based on the applicable legal standard, Garcia has forfeited his challenge to that portion of the court's order addressing his non-wage-order claims.

Id. at 28-31 (italics in original).

The Garcia court remanded with instructions to vacate the order on the Wage Order claims and to enter summary adjudication on the non-Wage Order claims.

So there you have it. The opinion is new enough that we don’t know if a petition for review will be filed or whether the Cal. Supremes will grant it.

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