A California Supreme Court decision last week fundamentally alters how courts will classify workers as employees or independent contractors when it comes to compliance with wage orders. The decision could potentially apply to all areas of employment law and generally will make it harder for businesses to prove its workers are independent contractors.
The decision, Dynamex Operations West, Inc. v. Superior Court, arises from a class-action lawsuit on behalf of a driver for a delivery company. Dynamex entered into contracts classifying its drivers as independent contractors, giving the drivers control over their work hours and some discretion over whether to accept assigned orders. The drivers used their own vehicles and were allowed to hire other drivers to perform deliveries. On the other hand, drivers were required to wear Dynamex shirts and badges and display the company logo on their vehicles.
Until now, courts had applied a very general test set forth in an earlier Supreme Court decision, which defined employment as: (1) to exercise control over the wages, hours, or working conditions; or (2) to suffer or permit to work; or (3) to engage, thereby creating a common law employment relationship.” This fairly vague standard required consideration of a large number of factors to determine whether a worker was an independent contractor or employee.
This decision will clearly and immediately impact how California businesses will be required to treat workers in such areas as overtime pay, minimum wage, and meal/rest breaks.
The Dynamex decision, on the other hand, adopts a more straightforward test used in several other jurisdictions, known as the “ABC test.” The decision provides that the worker is considered an employee unless the business can prove the worker is an independent contractor. To do so, the business must prove each of the following: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 and in fact;
The worker performs work that is outside the usual course of the hiring company’s business; and
The worker is customarily engaged in an independently-established trade or business.
Focusing on the second factor, the court concluded that delivery drivers are not independent contractors for wage order purposes because their work is directly in the usual course of the delivery company’s business. As examples of true independent contractors the court cited electricians and plumbers who had their own independent businesses and who performed services for the company, but not the type of services the company usually provided.
This decision will clearly and immediately impact how California businesses will be required to treat workers in such areas as overtime pay, minimum wage, and meal/rest breaks. It is yet to be determined how the decision will affect the classification as employees or independent contractors in workers’ compensation, tax, and other areas of labor and employment law.
Always advocating for the best interests of California employers, Roxborough, Pomerance, Nye & Adreani, LLP will continue to monitor this decision and how it will be applied by the courts. Our experienced employment and insurance attorneys are available to answer your questions about this decision and its potential effect on your business.
For more information, contact RPNA at info@rpnalaw.com or +1 818-992-9999.
