In a decision published Monday morning, the California Supreme Court rejected the longstanding multifactor standard that has been used to determine whether workers should be classified as employees or as independent contractors for purposes of California wage orders.
The case in which this decision was made, Dynamex Operations West Inc. v. The Superior Court of Los Angeles County, involved delivery drivers suing their employer Dynamex Operations West, Inc. (“Dynamex”), for misclassifying them as independent contractors rather than employees.
According to the decision, Dynamex adopted a new policy and contractual arrangement in 2004 under which all drivers were considered independent contractors rather than employees, even though they performed similar work when classified as employees prior to 2004. The drivers claimed that their misclassification as independent contractors led to Dynamex’s violation of the provisions of Industrial Welfare Commission (“IWC”) wage order No. 9 as well as various sections of the Labor Code and, as a result, that Dynamex had engaged in unfair and unlawful business practices.
The drivers believed the court should use the wage order’s definitions of “employ” and “employee.” The wage order essentially defines “employ” as to exercise control over the wages, hours, or working conditions or to suffer or permit to work, or to engage, thereby creating a common law employment relationship.
On the contrary, Dynamex contended that, even in the wage order context, the court should rely on the multifactor standard established by its 1989 decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341 (“Borello”). The Borello standard required several secondary factors to be considered in analyzing a worker’s classification. These factors included whether the service rendered requires a special skill, the length of time for which the services were to be performed, and the method of payment. This has been advantageous to employers in that if workers were to argue they were misclassified as independent contractors, the workers would have to show that the employer had sufficient control to find that there was an employer-employee relationship.
Rather than sticking to this multifactor standard, the California Supreme Court disagreed with Dynamex and adopted what's called the ABC test. The Court made clear that, moving forward, workers in California will be considered employees unless a business can show that the worker is (a) free from its supervision, (b) performs work that is outside the usual course or place of business, and (c) works in an independently established trade, occupation, or business of the same nature.
COUNSEL TO MANAGEMENT:
This decision continues the California Supreme Court’s employee-friendly streak, handing yet another win to employees. Employers who have workers classified as “independent contractors” should review that practice and ensure that they can rebut the Dynamex standard presumption. Please contact the experts at The Saqui Law Group if you have any questions or concerns about your employee classifications and what impact this decision could have on your Company.