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The California Supreme Court Addresses The “Employee” vs. “Independent Contractor” Question in Dynamex Operations West, Inc. v. Superior Court, 2018 WL 1999120, 2018 Cal. LEXIS 3152 (April 30, 2018)

ISSUE:

The California Wage Orders impose obligations on employers related to minimum wage, maximum hours, and minimum requirements for rest breaks, meal breaks, split shifts worked, and other employment conditions.  The purpose of the Wage Orders is to ensure that all employees receive a basic level of dignity and respect from their employers and may support their families with a guaranteed minimum wage.  However, the employee protections in the Wage Orders (e.g., minimum wage, and overtime pay requirements) do not apply to workers who are either “exempt” or who are classified as “independent contractors.” 

In the Dynamex decision, the California Supreme Court addressed the question of what standard applies in determining whether a worker is an “independent contractor” or an “employee” for purposes of California Wage Order protections.  Per the Dynamex decision, the purpose of the now applicable “suffer and permit” standard “is to bring within the ‘employee’ category all individuals who can reasonably be viewed as working ‘in the [hiring entity’s] business’ (citations), that is, all individuals who are reasonably viewed as providing services to the business in a role comparable to that of an employee . . . Workers whose roles are most clearly comparable to those of employees include individuals whose services are provided within the usual course of the business of the entity for which the work is performed and thus who would ordinarily be viewed by others as working in the hiring entity’s business and not as working, instead, in the worker’s own independent business.” 

DYNAMEX BACKGROUND FACTS

The two plaintiffs in this case worked as delivery drivers for Dynamex, a nationwide delivery company, making deliveries for Dynamex with their personal vehicles.  Prior to 2004, Dynamex classified the delivery drivers as employees.  To save money by cutting costs associated with employees, in 2004, Dynamex adopted a new policy classifying the drivers as “independent contractors,” and required the drivers to sign contracts to this effect. 

Dynamex negotiates rates with its customers for deliveries.  It pays drivers either a flat fee or an amount based on a percentage of the delivery fee; there is no set number of deliveries.  Drivers may set their own schedules, subcontract, or work for other delivery companies, but must tell Dynamex when they intend to work, and must promptly notify Dynamex of an intention to reject an assignment—or are liable for costs.  Dynamex requires the drivers to buy Nextel phones to use for communications with Dynamex, and to wear Dynamex shirts, badges, and decals.  2018 Cal. LEXIS 3152, *5-6, 12-14.

LEGAL HISTORY

The California Supreme Court initially addressed the “independent contractor” vs. “employee” question in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989). The Borello standard considered multiple factors, placing emphasis on the extent of the employer’s control over the manner and means of accomplishing the work. 

After Borello, in Martinez v. Combs, 49 Cal. 4th 35, 64 (2010), the California Supreme Court considered the question of who is an “employer” under California Labor Code section 1194.  When addressing this question, the Martinez Court looked to the definition of “employ” under the Wage Orders: “To employ,  under the [Wage Order’s] definition, has three alternative definitions.  It 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 Court, however, did not answer the question of whether these same definitions could be used to differentiate employees from independent contractors for purposes of the Wage Order protections.  The California Supreme Court answered this question in Dynamex

DYNAMEX DECISION

The Dynamex Court instructed that the so-called “ABC Test” should be applied to determine if a worker is an independent contractor.  The test “presumptively considers” all workers to be employees, and allows an independent contractor classification only if the hiring business demonstrates all of the following:

  1. The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract and in fact;
  2. The worker performs work that is outside the usual course of the hiring entity’s business; and,
  3. 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.  2018 Cal. LEXIS 3152, *55-58, 87-88, 89-90.

The Court explained, “the suffer or permit to work standard is relevant and significant in assessing the scope of the category of workers that the wage order was intended to protect.”  Id. at *78.  Recognizing the breadth of its ruling, the Dynamex Court stated, “[t]he adoption of the exceptionally broad suffer or permit to work standard in California wage orders 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.”  Id. at *79-80.

WHAT DOES THIS MEAN?

The second element of the ABC Test, (B), is determinative.  So long as a worker performs work that is not outside the usual business of the hiring entity, the worker will be deemed an “employee,” rather than an “independent contractor,” and is therefore afforded the protections of the California Wage Orders, including the minimum wage, maximum hour, overtime, and rest and meal break provisions. 

As the Dynamex Court explained, pursuant to this test, a plumber who provides plumbing services to a clothing retailer is an independent contractor because his or her business is separate from the clothing retailer’s business.  However, a work-at-home seamstress hired by the retailer to make dresses from cloth and patterns supplied by the retailer that will thereafter be sold by the retailer is “suffered or permitted to work” in a part of the retailer’s usual line of business, and is therefore an employee.  In this example, the seamstress would be entitled to minimum wages, overtime, and rest and meal breaks from the retailer in accordance with the Wage Orders; the electrician would not.

The Dynamex case is significant for employees.  It creates a straight-forward test to proving an employment relationship (rather than independent contractor relationship) exists, and “ensure[s] that those workers who need and want the fundamental protections afforded by the wage order do not lose those protections.”  2018 Cal. LEXIS 3152, *93. 

The Workman Law Firm, PC is an employment law firm representing employees across California in a broad spectrum of employment issues.  If you believe that you are improperly classified as an independent contractor and are entitled to employee protections in the Wage Orders, please contact us through our online portal or call us at (415) 782-3660, so we may discuss these issues.

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