Labor Laws—Employee vs. Independent Contractor

Labor Laws—Employee vs. Independent Contractor

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Dynamex Operations West, Inc. v. Superior Court, No. S222732 (4/30/18)

The Supreme Court resolved a hotly-litigated issue that broadly impacts California residents, an issue left unresolved in Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522: the standard for classifying workers as employees or independent contractors for purposes of California wage orders, which impose obligations relating to the minimum wages, maximum hours, and basic working conditions, such as meal and rest breaks. The underlying lawsuit involved delivery drivers who were allegedly misclassified as independent contractors.

The trial court denied a motion to decertify a class, applying the three alternative definitions of “employ” and “employer” set forth in the applicable wage order, as discussed in Martinez v. Combs (2010) 49 Cal.4th 35, 64. “To employ . . . under the [wage order], means: (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.” The trial court rejected Dynamex’s contention that in the wage order context, as in most other contexts, the multifactor standard set forth in S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341 provided the only standard under California law for distinguishing employees and independent contractors. The Court agreed with the trial court that the “suffer or permit to work” definition of “employ” contained in the wage order may be relied upon for purposes of determining whether the obligations imposed by the wage order apply to the class of drivers.

Under the wage order test, commonly referred to as the “ABC test,” a worker is presumptively an employee, and can be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (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.

The Borello test is more a statutory purpose test, not a common law test. Borello’s holding that farmworkers were employees advanced the purposes of the workers’ compensation act (as opposed to independent contractors who were excluded from the coverage of the act). By the same token, adoption of the “exceptionally broad suffer or permit to work standard” finds its justification “in the fundamental purposes and necessity of the minimum wage and maximum hour legislation in which the standard has traditionally been embodied.” Excluded from the definition will only be a “traditional independent contractor — such as an independent plumber or electrician — who would not reasonably have been viewed as working in the hiring business. Such an individual would have been realistically understood, instead, as working only in his or her own independent business.”

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