The ABCs of Independent Contractors

May 1, 2018

The ABCs of Independent Contractors

In the recently decided case Dynamex Operations West, Inc. v. Superior Court (SC S222732 4/30/18) by the California Supreme Court, it is now incumbent upon businesses to prove their workers should be classified as independent contractors, not employees. In this case, the California Supreme Court decided what standard applies, under California law, in determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders, which impose obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees.

Prior to 2004, Dynamex classified as employees those drivers who allegedly performed similar pickup and delivery work as the current drivers perform. In 2004, however, Dynamex adopted a new policy and contractual arrangement under which all drivers are considered independent contractors rather than employees. Dynamex maintains that, in light of the current contractual arrangement, the drivers are properly classified as independent contractors.

Two individual delivery drivers, suing on their own behalf and on behalf of a class of allegedly similarly situated drivers claimed that Dynamex’s alleged misclassification of its drivers as independent contractors led to Dynamex’s violation of the provisions of Industrial Welfare Commission Wage Order No. 9, the applicable state wage order governing the transportation industry, as well as various sections of the Labor Code, and, as a result, Dynamex had engaged in unfair and unlawful business practices under Business and Professions Code §17200.

The court concluded that in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, you must look to the standard commonly referred to as the “ABC” test. This test is utilized in other jurisdictions, including New Jersey and Massachusetts, in a variety of contexts to distinguish employees from independent contractors. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes each of the following three factors: (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.

The Court held that it is the burden of the hiring entity to establish that a worker is an independent contractor who was not intended to be included within the applicable wage order’s coverage.

This decision has the potential for wide-ranging effects on California employers, who must be cogniziant of the new standard, and review how they are classifying their workers.  Given this ruling applies only to analysis under the Wage Orders, it remains unclear how it will impact other areas such as worker’s compensation.

The attorneys at Ericksen Arbuthnot look forward to working with you to confirm that your hiring practices abide by all current laws. Andrew Kozlow can be reached at 510.832.7770 or akozlow@ericksenarbuthnot.com. Graham Cridland can be reached at 916.483.5181 or gcridland@ericksenarbuthnot.com.