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CA Supreme Court Enhances Independent Contractor Restrictions for Employers

The long-anticipated case Dynamex Operations West, Inc. v. Superior Court of Los Angeles, was issued on April 30, 2018.  The case dealt with whether delivery drivers classified as independent contractors were misclassified as such under California Industrial Wage Commission Wage Order No. 9-2001.

The Dynamex court held that both the ABC Test for worker classification, as well as the seminal case, S. G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal. 3d 341 (1989), are applicable in determining employment status under California Wage Orders. Following Dynamex, all independent contractor relationships in California will be subject to the ABC standard, in addition to Borello, for purposes of wage and hour litigation and administrative wage claims.

Much more restrictive, the ABC Test says that a worker is properly considered an independent contractor 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.

Prong (B) is the hardest to overcome if the contractor is performing work that is the same as that of the hiring entry, for example, where the principal is in the business of performing janitorial services, and the contractors are janitors.

However, Dynamex is isolated to interpretation of IWC Wage Orders and does not apply to EDD payroll taxes at this time.* Nor does it apply to workers' compensation insurance currently, though Jim Bourbeau expects that this may change, depending on the cases brought.

It will be a harder task for the EDD to shoehorn Dynamex into its own statutory structure. The EDD has specific statutory definitions of employment and employee that are not shared under the Labor Code. Even though Borello was held in Air Couriers Internat. v. Employment Development Dept., 150 Cal.App. 4th 923, to apply to EDD worker classification matters as well as workers' compensation, it was only because Borello did not stray too far from the previously-established California primary and secondary factors.

If you have concerns regarding worker classification at your business, contact us today at (916) 488-8501 or [email protected]

*From Dynamex page 45:

"As already explained, Dynamex's petition for review challenged only the Court of Appeal's conclusion that the trial court, in ruling on the class certification motion, did not err in relying upon the definitions of the employment relationship contained in the wage order with regard to those claims that derive directly from the obligations imposed by the wage order. Accordingly, we address only that issue.

As discussed above, in Martinez, supra, 49 Cal.4th 35, this court clearly held that the IWC has the authority, in promulgating its wage orders, to define the standard for determining when an entity is to be considered an employer for purposes of the applicable wage order."

Dynamex conclusion, page 81:

"For the foregoing reasons, we conclude that under a proper understanding of the suffer or permit to work standard there is, as a matter of law, a sufficient commonality of interest within the certified class to permit the question whether such drivers are employees or independent contractors for purposes of the wage order to be litigated on a class basis."

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