In Dynamex Operations West v. Superior Court delivery drivers sued Dynamex alleging that Dynamex had misclassified them, and others similarly situated, as independent contractors instead of employees. The plaintiffs argued that Dynamex violated Industrial Welfare Commission Wage Order No. 9 (“Wage Order”) and various sections of the Labor Code. As a result, they alleged Dynamex had engaged in unlawful and unfair business practices.
Prior to 2004, Dynamex had classified drivers as “employees.” In 2004, Dynamex converted all of its drivers to “independent contractors.” The drivers were required to provide their own vehicles and pay for all of their transportation expenses, including fuel, tolls, vehicle maintenance, vehicle insurance, taxes, workers’ compensation insurance, etc. For all purposes, the plaintiffs were treated as independent contactors.
The trial court held, and the Court of Appeal affirmed, that the “suffer or permit to work” definition of “employ” contained in the Wage Orders may be relied upon in evaluating whether a worker is an “employee” or an “independent contractor.” The Supreme Court of California affirmed, adding that the Wage Order’s “suffer or permit to work” definition must be interpreted broadly as to “employees.” Thus, the Wage Order’s protection encompasses all workers who would ordinarily be viewed as working in the hiring business.
“ABC” Test Adopted
In its holding, the Supreme Court of California upended decades of California precedent and adopted the “ABC” Test used in other jurisdictions.
Under this test, the presumption is that all workers are employees. The burden of establishing that a worker is an independent contractor, instead of an employee, is on the employer.
Thus, the employer must establish the following:
(A) 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) The worker performs work that is outside the usual course of the hiring entity’s business; and
(C) 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.
Failure to establish any one of the three elements will lead to a determination that the worker is an employee as a matter of law.
Lessons from the Decision
Notably, the ABC test makes it more difficult for employers to classify workers as true independent contractors. Prior to this test, there were several factors that courts considered when determining whether a worker was improperly classified as an independent contractor. The prior test gave putative employers more options to demonstrate that a worker was properly classified as an independent contractor. There was no “bright-line” test. Now, this presumption that the worker is an employee, not an independent contractor, will place a heavy burden of proof on each putative employer. If the putative employer is unable to prove even one of the elements in the ABC test, the court will find that the worker is an “employee,” not an independent contractor.
Employers should review carefully the process and criteria they are using to classify “independent contractors” and should consider consulting a qualified attorney to determine whether workers are truly “independent contractors” under the three-part ABC Test.