In Dynamex Operations West v. Superior Court, Cal. Supreme Ct. no. S222732, 2018 WL 1999120 (Cal. Apr. 30, 2018) (Google Scholar link here) the California Supreme Court has issued a major opinion (85-pages, no less) on when a worker may be classified as an independent contractor as opposed to an employee under the Wage Orders of the Industrial Welfare Commission. The Cal. Supremes held that California workers are presumptively employees and adopted a three-part test that must be satisfied in full by the hirer to establish independent-contractor status.
Dynamex is a wage-and-hour misclassification class action involving drivers for a nationwide courier and delivery service (the typical claims were asserted, e.g., unfair business practices under Business and Professions Code section 17200, Labor Code violations for failure to pay overtime compensation, failure to provide proper wage statements, and failure to reimburse expenses). Although the defendant treated its California drivers as employees prior to 2004, it changed the classification of all drivers to independent contractors in 2004 specifically to generate economic savings. Slip op. at 8. The defendant did the classic economic shifting that we usually see in these types of cases: the drivers were required to provide their own vehicles and pay all transportation expenses, maintenance, insurance, taxes, etc. Id. But it also went further: the drivers were allowed to hire other people to make the deliveries and were also allowed to have drivers make deliveries for other companies so long as none of the defendant's orders were diverted to due delivery orders from other outside customers. See slip op. at 10.
The trial court ultimately ordered the proposed class certified, and the Court of Appeal and Cal. Supremes affirmed. In doing so, the Cal. Supremes laid down some major holdings in wage-and-hour law regarding the test for when a worker may be classified an independent contractor.
There's a ton in this opinion. Here are the key excerpts and holdings to get you up to speed.
(1) The "suffer or permit to work" definition of "employ" in the Wage Orders "may be relied upon in evaluating whether a worker is an employee or, instead, an independent contractor for purposes of the obligations imposed by the wage order." Slip op. at 6-7.
(2) The Borello factors (see S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989)) are no longer the only standard in determining whether a worker is an employee or independent contractor---the Wage Order definitions of "employ" and "employer" as construed in Martinez v. Combs, 49 Cal. 4th 35 (2010), also apply. Slip op. at 44.
(Recall that the Cal. Supremes in Martinez held that the Wage Orders "embodied three alternative definitions of 'employ': '(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.'" See slip op. at 45.)
Although the Martinez case was decided in the context of whether an entity could be considered a joint employer under the Wage Orders, the definitions of "employ" in Martinez also apply to the question of whether a worker is an employee or an independent contractor under the Wage Orders:
[W]e conclude that there is no need in this case to determine whether the exercise [of] control over wages, hours or working conditions definition is intended to apply outside the joint employer context, because we conclude that the suffer or permit to work standard properly applies to the question whether a worker should be considered an employee or, instead, an independent contractor, and that under the suffer or permit to work standard, the trial court class certification order at issue here should be upheld. (See Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1032 [when plaintiffs in a class action rely on multiple legal theories, a trial court’s certification of a class is not an abuse of discretion if certification is proper under any of the theories].)
Slip op. at 46-47.
(3) Under the suffer-or-permit-to-work test, the worker can be classified as an independent contractor only if the hirer establishes each element of the newly adopted "ABC test"---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; all three elements must be proven by the hirer:
For the reasons explained hereafter, we conclude that in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC” test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (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 such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Slip op. at 7.
Since the hirer must establish all of the ABC elements in order to support an independent-contractor classification, these elements can be addressed by a trial court in any order---the Cal. Supremes advise that it may be beneficial to address them in nonsequential order where one factor is clearly not proven by the employer in order to more easily decide the issue:
It bears emphasis that in order to establish that a worker is an independent contractor under the ABC standard, the hiring entity is required to establish the existence of each of the three parts of the ABC standard. Furthermore, inasmuch as a hiring entity’s failure to satisfy any one of the three parts itself establishes that the worker should be treated as an employee for purposes of the wage order, a court is free to consider the separate parts of the ABC standard in whatever order it chooses. Because in many cases it may be easier and clearer for a court to determine whether or not part B or part C of the ABC standard has been satisfied than for the court to resolve questions regarding the nature or degree of a worker’s freedom from the hiring entity’s control for purposes of part A of the standard, the significant advantages of the ABC standard — in terms of increased clarity and consistency — will often be best served by first considering one or both of the latter two parts of the standard in resolving the employee or independent contractor question.
Slip op. at 76.
In sum, we conclude that unless the hiring entity establishes (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact, (B) that the worker performs work that is outside the usual course of the hiring entity’s business, and (C) that the worker is customarily engaged in an independently established trade, occupation, or business, the worker should be considered an employee and the hiring business an employer under the suffer or permit to work standard in wage orders. The hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an included employee, rather than an excluded independent contractor, for purposes of the wage order.
Slip op. at 77.
(4) The federal "economic-reality test" does not govern whether California workers are independent contractors or employees; California's protection under the Wage Orders is broader:
Unlike a number of our sister states that included the suffer-or-permit-to-work standard in their wage and hour laws or regulations after the FLSA had been enacted and had been interpreted to incorporate the economic reality test, California’s adoption of the suffer or permit to work standard predated the enactment of the FLSA. (See Martinez, supra, 40 Cal.4th at pp. 57-59.) Thus, as a matter of legislative intent, the IWC’s adoption of the suffer or permit to work standard in California wage orders was not intended to embrace the federal economic reality test. Furthermore, prior California cases have declined to interpret California wage orders as governed by the federal economic reality standard and instead have indicated that the California wage orders are intended to provide broader protection than that accorded workers under the federal standard. (See Martinez, supra, 49 Cal.4th at pp. 66-68; accord Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833, 843; Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 592; Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 797-798.)
Slip op. at 65-66.
(5) Workers are presumptively considered employees---the burden of showing that a particular Wage Order governs falls on the hirer, not the worker:
We find merit in the concerns noted above regarding the disadvantages, particularly in the wage and hour context, inherent in relying upon a multifactor, all the circumstances standard for distinguishing between employees and independent contractors. As a consequence, we conclude it is appropriate, and most consistent with the history and purpose of the suffer or permit to work standard in California’s wage orders, to interpret that standard as: (1) placing the burden on the hiring entity to establish that the worker is an independent contractor who was not intended to be included within the wage order’s coverage;[fn 24 omitted] and (2) requiring the hiring entity, in order to meet this burden, to establish each of the three factors embodied in the ABC test [above] . . . .
Slip op. at 66; see also slip op. at 64 ("The ABC test presumptively considers all workers to be employees....").
Applying the foregoing, it was easy for the Cal. Supremes to conclude that there was sufficient commonality under part B of the ABC test (whether the work done by the workers was outside the hirer's usual business) to allow class certification. After all, "[D]ynamex’s entire business is that of a delivery service." Slip op. at 79. And because the hirer must establish all elements of the ABC test, the fact that there is sufficient commonality on element B is also sufficient to uphold certification overall, since a failure by Dynamex to establish element B would result in a determination that the workers are all employees. Id. at 80. (The Cal. Supremes then go on to say that, for guidance, there is also sufficient commonality of interest under part C of the test (whether the workers are customarily engaged in independent businesses) to also support certification. See id. Under that question/element, the class only includes drivers who worked solely for the defendant. See id.)
Unanimous opinion authored by Chief Justice Cantil-Sakauye with not even a single concurring opinion, much less a dissenting opinion.
This is huge. Because commonality exists on whether the hirer can establish one part of the ABC test, the class was properly certified.
Can you see the easy application to wage-and-hour class actions generally? It's not hard.
One even broader question is whether the "suffer or permit to work" standard for employment status under the Wage Orders (via the ABC test) is also applicable to establish employment status under other remedial worker-protection statutes like the Fair Employment and Housing Act.
The Dynamex opinion included a lengthy discussion of Borello and noted that Borello itself was about employment classification for purposes of worker's compensation. Yet the commonly referred-to "Borello factors" went on to see much broader application to the employee/independent-contractor classification question well outside the worker's compensation arena. But that led to problems in the application of the non-exclusive Borello factors to the issue of employment classification, since they are so confusing, non-exhaustive, and essentially require a vague totality-of-the-circumstances approach, all of which caused the Cal. Supremes to adopt the conjunctive ABC test.
Nevertheless, like the Borello factors before it, will the ABC test be applied to other worker-protection statutes to determine whether a hirer is an employer for purposes of coverage and application of those statutes?
That remains to be seen. But the language in the case law is all there to make the arguments.
Take, for example, the Fair Employment and Housing Act. As we all know, the FEHA, like the Wage Orders, is also a remedial law that requires broad interpretation in favor of worker protection. See, e.g., Robinson v. Fair Employment & Housing Commission, 2 Cal. 4th 226, 243 (1992) ("Because the FEHA is remedial legislation, which declares “[t]he opportunity to seek, obtain and hold employment without discrimination” to be a civil right (§ 12921), and expresses a legislative policy that it is necessary to protect and safeguard that right (§ 12920), the court must construe the FEHA broadly, not . . . restrictively."). It's easy to see briefing citing language like that contained in the following excerpt from Dynamex in arguing for application of the ABC test to those other remedial statutes to determine employment status:
Given the intended expansive reach of the suffer or permit to work standard as reflected by its history, along with the more general principle that wage orders are the type of remedial legislation that must be liberally construed in a manner that serves its remedial purposes (see, e.g., Industrial Welf. Com., supra, 27 Cal.3d at p. 702, 166 Cal.Rptr. 331, 613 P.2d 579), as our decision in Martinez recognized, the suffer or permit to work standard must be interpreted and applied broadly to include within the covered “employee” category all individual workers who can reasonably be viewed as “working in the [hiring entity's] business.” (Martinez, supra, 49 Cal.4th at p. 69, 109 Cal.Rptr.3d 514, 231 P.3d 259, italics added [“A proprietor who knows that persons are working in his or her business without having been formally hired, or while being paid less than the minimum wage, clearly suffers or permits that work by failing to prevent it, while having the power to do so” (italics added) ].)
Dynamex, slip op. at 60.
Similarly, the "suffer or permit to work" test, which was applied in Martinez just for purposes of determining the status of a hirer as a joint employer under the Wage Orders, is now applied for purposes of determining whether a worker is properly classified as an employee or independent contractor---i.e., the test is used in another context.
And what about many other worker-protection statutes, e.g., the general whistleblower protections under Labor Code section 1102.5? Or the statutory protections from retaliation for making safety complaints under Labor Code section 6310? Or the statutory protections for healthcare workers who make a patient-safety complaint under Health and Safety Code section 1278.5? The list goes on.
The rebuttal, at a minimum, will include that the Cal. Supremes in Dynamex were only deciding what the test is for employment status under the Wage Orders alone, and not in any other context. The Dynamex court even emphasized this limitation in its opinion:
The issue in this case relates to the resolution of the employee or independent contractor question in one specific context. Here we must decide what standard applies, under California law, in determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders, which impose obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees.
Slip op. at 3 (italics in original).
So the Dynamex court was clear that it was deciding the classification in "one specific context" and "for purposes of California wage orders" (even italicizing the latter). By giving us this caveat and by going on to say that the wage orders impose "obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees" (italics added), a hirer may well argue that the Dynamex court's adoption of the expansive ABC test was only for purposes of enforcing these very specific and "very basic working conditions," not others like the employee protections under the FEHA and other statutes.
Of course, the interest in establishing an employment relationship goes beyond worker-protection statutes. What about vicarious/respondeat superior liability for purposes of, for example, personal-injury matters? Take for example the situation of a truck driver negligently running a red light and causing serious injury or death to a pedestrian. What if the truck driver is classified as an independent contractor, but the hirer is unable to meet the ABC test (this could even be a driver hired by Dynamex itself, depending on how the adjudication of the ABC test were to actually play out (remember, the affect of the opinion is just about the trial court's certification decision))? Will a court also rule that the hirer is vicariously liable for the negligence of the driver, applying the ABC test outside of a wage-hour or Wage Order matter?
What will happen when these and other questions are raised? We'll have to wait for later cases to find out.
Another question. The Dynamex court was only interpreting the "suffer or permit to work" test (now clarified as the ABC test), which "may be relied upon " in determing employment status under the Wage Orders. See Dynamex, 2018 WL 1999120 at *4, slip op. at 6-7. May a worker rely on any other test (e.g., the economic-realities test or the Borello factors) in situations where the hirer may be able to meet the ABC test but there may be a more difficult question with regard to the other test? Dynamex does not appear to limit this type of argument by workers in the face of a hirer arguing that it can successfully meet the ABC test. Perhaps this is getting too abstract and theoretical, since the control factor is now part A of the ABC test, and the criteria of the other tests may be subsumed within the ABC test. This is an interesting possibility seemingly left open in Dynamex, though.
But getting back to the Dynamex holding, regardless of one's view on its expansiveness, the Cal. Supremes have really laid down what will be the seminal opinion in employee-versus-independent-contractor-classification precedent. The Cal. Supremes have given us much more clarity on this fundamental issue of California employment law affecting workers across the state. Under Dynamex, all California workers are presumptively employees, and defeating this presumption requires the hirer to show that it meets the ABC test.