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California’s Dynamex case: The ABC test simplifies the misclassification of workers as independent contractors

On Behalf of | May 10, 2018 | Employee classification

On April 30, 2018, the California Supreme Court published a ground-breaking decision in the case of Dynamex Operations West v. Superior Court, Cal. Supreme Ct. no. S222732, 2018 WL 1999120.  The 85-page opinion is about when a worker may be classified as an independent contractor, as opposed to an employee, under California’s Wage Order.  Wage Order 9 was at issue in this case.

Dynamex is a nationwide courier whose drivers were once classified as employees by the company, but were later reclassified as independent contractors in 2004. Such reclassification is often executed by companies in order to generate economic savings at the expense of its employees. For example, in Dynamex, the drivers were required to provide their own vehicles and pay all transportation expenses, maintenance, insurance, taxes, etc.

The gist of the decision is this:  If the employer cannot satisfy the ABC test, then the worker is an employee under the “suffer or permit to work” definition of “employ” under the Wage Order.  The burden is on the hiring entity to establish that the worker is an independent contractor.  The hiring entity must establish each of the following three factors: (A) the worker was actually 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; (B) the work performed is outside the hirer’s usual course of business, and (C) the worker is customarily engaged in an independent business.

The court noted that this test levels the competitive playing field in many ways.  For instance, this test protects companies that in good faith comply with the wage orders against competitors that resort to cost savings by misclassifying workers.  Conversely, this test protects employees from other workers who might try to displace workers who are willing to work below the legal standards.  The court also reaffirmed that businesses cannot simply elect to label a worker as an independent contractor.  An independent contractor is someone who has freely made a decision to go into business for himself or herself.  It cannot be the result of a choice imposed upon the worker by the hiring entity.  The court also noted that the business need not control the precise manner or detail of work for the worker to be classified as an employee.

The Dynamex decision will affect many industries all over California, and perhaps most notably, the gig-economy, whose model depends on independent contractors.  But it is important to emphasize that the language in the decision relates to the Wage Orders.  The court noted that there could be different tests depending on the underlying statutes and policies at play in any given case.  It is therefore possible that under the Wage Orders, a worker could be deemed an employee, but under some other statute, a worker could properly be classified as an independent contractor.

– Eric A. Boyajian, Esq., Law Offices of Eric A. Boyajian, APC.  www.loeab.com.