Dynamex Operations W., Inc. v. Superior Court: Heightening Employers Duties under the California Labor Code

By:  Ken Jensen

In California, the wind is blowing in favor of applying Labor Code standards broadly to workers, limiting the “independent contractor” designation.

On April 30, 2018, the California Supreme Court rendered a significant Labor Law opinion involving independent contractors:  Dynamex Operations W., Inc. v. Superior Court, No. S222732, 2018 WL 1999120 (Cal. Apr. 30, 2018).  The effect of the case is to restrict the use of independent contractors.

The case is complicated – and generally about standards to apply.  It arises in a class certification context – Dynamex was petitioning regarding the certification of a class action for its delivery drivers, arguing that the Court applied the wrong legal standard to the question of what constitutes an independent contractor.

The opinion clarifies the standard in determining whether a worker is considered an independent contract, at least for obligations deriving from California wage orders.   In California, certain labor obligations are defined directly by the Labor Code.  Others derive from Wage Orders, quasi-legislative regulations that constitutionally have the force of law.  The Court in Dyanamex dealt with this latter category, leaving unclear whether its test applies to wage claims that do not arise from a wage order.

After an 80-page tour through California jurisprudence, the Court concluded that the standard articulated the case of Martinez v. Combs, 49 Cal.4th 35, 64 (2010) applies to labor obligations deriving from wage orders.  Under the Martinez standard, a worker is an employee if he or she is “employed” by an “employer,” and “employ” is defined as: “(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 Supreme Court declined to apply the common law multifactor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989).)  Relevant to the independent contractor analysis is subsection (b) under the Martinez test – the “suffer or permit to work” standard.

After Dynamex, the burden is on the hiring entity “(1) to establish that the worker is an independent contractor who was not intended to be included within the wage order’s coverage; and (2) requiring the hiring entity, in order to meet this burden, to establish each of the three factors embodied in the ABC test—namely (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (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.”  Dynamex Operations W., Inc. v. Superior Court, No. S222732, 2018 WL 1999120 (Cal. Apr. 30, 2018).

What does this all portend for businesses and labor in California?  The standard applying to whether one is correctly classified as an independent contractor is much more restrictive and the standard has shifted to a worker-oriented analysis.  The common law standard articulated in Borello focused heavily on the employer and their “right to control” the means and manner in which work is performed by a worker.  The standard now is that you are employing someone if you “suffer or permit to work”.  The Court is careful to state that this does not mean that every plumber you hire is an employee, but it articulates the above “ABC” test, which focuses heavily on the worker in the relationship.

Further, the language in the opinion is very worker-friendly, bemoaning the societal costs and burdens of misclassifying employees as independent contractors.  We are well beyond the employer contractual language controlling the outcome.  The Court now presumes that all workers are employees instead of independent contractors.  The burden is on the employer classifying an individual as an independent contractor to establish that such classification is proper.

More needs to be said, particularly as to why we still have so many standards for determining such a basic issue.  As stated above, this case expressly dealt with wage orders.  Further litigation will clarify the extent to which these standards apply to cases with general Labor Code claims.

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