On April 30, 2018, the California Supreme Court issued a landmark decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles that rejected the timeless Borello test in favor of the ABC test for purposes of whether workers should be identified as employees or independent contractors for wage order determinations under the state’s Industrial Welfare Commission.
The Court’s decision sends a loud message favoring workers in today’s Uber, Lyft, and consumer-convenience world.
Dynamex is a nationwide courier and delivery service based in Texas that has four operation centers in California. In 2004, Dynamex converted its employees to independent contractors with the hope to generate cost-savings for the company. Subsequently, drivers for the company filed suit alleging misclassification as independent contractors. The crux of the drivers’ complaint was violation of overtime pay and meal and rest break violations under California’s Labor Code and unfair business practices under California Business and Professional Code § 17200.
In the seminal case of S.G. Borello & Sons v. Director of Dept. of Industrial Relations, the Court promulgated its landmark decision that created a multi-factor, common law test to distinguish an employee from an independent contractor. Under the Borello test, the most important factor that determines whether a worker is an employee or an independent contractor is whether the entity to whom service is being rendered has control, or the right to control, the manner and mode of the job. Moreover, subsequent factors that determine whether a worker is an employee or an independent contractor include, but are not limited to, factors such as whether the worker performing services is engaged in an occupation or business distinct from that of the principal, whether or not the work is a part of the regular business of the principal or alleged employer, whether the principal or the worker supplies the instrumentalities and tools for the worker doing the job, and the alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers.
However, and now, Dynamex changes things. Dynamex holds that there is a presumption that workers are employees, thus mandating that an entity classifying a worker as an independent contractor bear the burden of establishing the classification under the ABC test. To meet this burden, the hiring entity must establish each of the following A,B, and C factors:
(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; and
(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.
While it may appear that the A, B, and C factors are identical to some of the factors found in the Borello test, and thus, that the Dynamex decision does not really change things, Dynamex applies to wage order determinations for issues like minimum wage and overtime, but does not apply to other issues like expense reimbursement generally set aside for employees. This means that there is potential for a worker to be classified as both an employee and as an independent contractor for the same job. As potentially complex and confusing as this may all seem, one thing is certain: the Court acknowledges the increase in gig-workers and is doing what it can to ensure their protection. This should definitely give businesses and employers something to think about the next time they try to be dynamic with their hiring and worker classification structure.
By Cecilia J. Hong, Carno Law Group
Email: [email protected]