On April 30, 2018, the California Supreme Court issued a landmark decision in the matter of Dynamex Operations W., Inc. v. Superior Court, No. S222732, 2018 WL 1999120 (Cal. Apr. 30, 2018), severely restricting when it is appropriate for an employer to classify a worker as an independent contractor for purposes of the California Wage Orders.
The Court adopted the “ABC” test, utilized in several other jurisdictions, as the appropriate test to determine whether a worker is an employee or an independent contractor. The “ABC” test clarifies the definition of “employ” (“to engage, suffer, or permit to work”) that is set forth in the California Wage Orders. Under this test, “a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes:
(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 new test starts with the presumption that the worker is an employee, and it is the employer that bears the burden of establishing that the worker is an independent contractor by satisfying all three parts of the “ABC” test.
In applying the “ABC” test, the Court stated that plumbers and electricians who are realistically understood as working in their own independent businesses are likely independent contractors, whereas seamstresses who work at home on their own hours or cake decorators who work on custom-designed cakes are likely employees. The Court intimated that truck drivers, like the plaintiffs in the Dynamex case, were employees. The Dynamex case involved a class of same-day courier and delivery drivers who provided their own vehicles, paid for all of their transportation expenses, and generally set their own schedules. The Court noted under part B of the “ABC” analysis, that Dynamex’s “entire business is that of a delivery service.” Accordingly, Dynamex would have a difficult time establishing that the truck drivers perform work that is “outside the usual scope of [Dynamex’s] business.” As the Court explained, “a hiring entity’s failure to satisfy any one of the three parts [of the “ABC” test] establishes that the worker should be treated as an employee for purposes of the wage order.”
Employers can face severe adverse consequences if they misclassify an employee or group of employees as independent contractors. Plaintiffs’ attorneys regularly file class action and Private Attorneys General Act (“PAGA”) lawsuits seeking damages and penalties for minimum wage, overtime, meal and rest period violations, paycheck stub violations, and final wage penalties as a result of misclassification of employees as independent contractors. In addition, California Code of Civil Procedure Section 226.8 subjects employers to penalties of up to $25,000 for willfully misclassifying an employee as an independent contractor.
Employers doing business in California that utilize independent contractors should contact legal counsel at Hill, Farrer & Burrill to make sure they are properly classifying workers pursuant to the Wage Orders as interpreted by this new Dynamex decision.