Employee or Independent Contractor? New Dynamex Test from California Supreme Court Provides Needed Clarification
In a landmark decision, the California Supreme Court has adopted a new test for whether a worker is an employee or an independent contractor under the California Wage Orders governing entitlement to minimum wages and overtime pay, the right to meal and rest breaks, and many other aspects of employment. See Dynamex Operations W., Inc. v. Sup. Ct. of L.A. Cnty., S222732 (Cal. Apr. 30, 2018).
Prior law provided several definitions of "employee" under the Wage Orders, including a broad but cryptic definition stating that anyone who was "suffered or permitted to work" was an employee. Interpreted literally, this definition made little sense, because it would cover even a quintessential independent contractor, such as the plumber who comes to fix your sink. For that reason, the "suffer or permit" standard had been a looming uncertainty for years. The Dynamex decision ends the uncertainty by adopting the so-called "ABC Test" for when a worker has been "suffered or permitted" to work such that she or he is an employee under the Wage Orders. Under Dynamex's ABC Test, a worker is not an independent contractor under the California Wage Orders unless the hiring entity proves: "(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."
From the perspective of the plaintiffs' bar and workers' rights community, the adoption of the ABC test will be a welcome development in countering what felt to many to be flimsy efforts to disguise employee workforces as collections of independent business owners. The facts of the Dynamex case involved delivery drivers who had been classified as employees, but who were then reclassified as independent contractors doing the same delivery work but with fewer protections and at less cost to the defendant.
The Court's newly adopted test should make class certification more likely in independent contractor misclassification cases: Because each prong of the ABC test must be satisfied by the employer, if even a single prong will stand or fall on a classwide basis, a strong argument for commonality will exist.
In addition to protecting employees, the Court expressed a desire to ensure that employers would understand in advance how to classify their workers. Clarification of the standard should be a welcome development for all stakeholders, although the ruling may result in some employers' current policies falling out of an arguably grey area and into the realm of clear misclassification. The Court also expressed a desire to level the playing field by ensuring that companies that classify their workers as employees will not be at a disadvantage to competitors who might otherwise have taken an aggressive view of the vagueness of the law to classify similar workers as independent contractors.
The Court's holding was limited to the context of the California Wage Orders, with the Court specifically declining to rule on the employee--independent contractor distinction under California Labor Code provisions that are not part of the wage orders. However, similar developments under those laws seem likely in the wake of Dynamex.
William Jhaveri-Weeks is the founder of The Jhaveri-Weeks Firm, a San Francisco-based civil litigation practice for individuals and organizations.