California Supreme Court Clarifies Standard for Determining if Workers are Employees or Independent Contractors

Written By ESR News Blog Editor Thomas Ahearn

On April 30, 2018, the California Supreme Court issued an opinion in the case of Dynamex Operations West, Inc. v. Superior Court to clarify the standard for determining if workers in the state should be classified as employees or as independent contractors for wage orders adopted by California’s Industrial Welfare Commission (IWC). The Court called for an “ABC” test that presumes individuals are employees.

In the opinion, the California Supreme Court adopted the so-called “ABC” test used in other jurisdictions to distinguish between employees and independent contractors. This test presumptively considers all workers to be employees and permits workers to be classified as independent contractors only if the employer demonstrates that the worker in question satisfies each of the following three conditions:

  • 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 the work and in fact; and
  • 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 that involved in the work performed.

In the underlying class action lawsuit, two individual delivery drivers – Charles Lee and Pedro Chevez – filed a complaint on their own behalf and for a Class of approximately 1,800 allegedly similarly situated drivers against Dynamex Operations West, Inc., claiming that the nationwide package and document delivery company had misclassified its drivers as independent contractors rather than employees.

Lee and Chevez were hired by Dynamex as delivery drivers to transport packages, letters, and parcels to Dynamex customers. Prior to 2004, Dynamex classified drivers who performed similar work as the current drivers perform as employees. In 2004, Dynamex adopted a new policy and contractual arrangement under which all drivers are considered independent contractors rather than employees.

In 2005, several drivers filed a lawsuit claiming they performed the same tasks as contractors as they performed when they were classified as employees and that the reclassification violated the provisions of IWC wage order No. 9 governing the transportation industry, various sections of the Labor Code, and engaged in unfair and unlawful business practices under Business and Professions Code section 17200.

The proper classification of drivers as employees or as independent contractors once relied upon three alternative definitions of “employ” and “employer” set forth in the applicable wage order discussed in Martinez v. Combs (2010): (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 Court ruled 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, it is appropriate to look to a standard, commonly referred to as the ‘ABC’ test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors.”

The Court also concluded that “the suffer or permit to work definition is a term of art that cannot be interpreted literally in a manner that would encompass within the employee category the type of individual workers, like independent plumbers or electricians, who have traditionally been viewed as genuine independent contractors who are working only in their own independent business.”

In December 2011, ESR News reported that a new law took effect in California on January 1, 2012 – Senate Bill 459 (SB 459) – would impose stiff penalties ranging between $5,000 to $25,000 for the “willful misclassification” of independent contractors by employers “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”

The need for employers to properly screen the expanding extended workforce in America – which can include independent contractors, freelancers, consultants, temps, and other types of workers with non-traditional employer-employee relationships – is one of the “ESR Top Ten Background Check Trends” for 2018 selected by global background check firm Employment Screening Resources (ESR).

The 2015 Contingent Work Supplement (CWS) survey by the Bureau of Labor Statistics (BLS) estimated the extended workforce could be “more than a third of the total employed labor force” and that “nearly four out of five employers, in establishments of all sizes and industries, use some form of nontraditional staffing” that includes “multiple job holders and people in alternative work arrangements.”

Background Check Solutions for Independent Contractors

Employment Screening Resources (ESR) – a leading global background check firm – can help employers quickly and compliantly screen independent contractors from the growing extended workforce in the on-demand economy that will include an estimated 7.6 million Americans by 2020. To learn more, please visit www.esrcheck.com/Background-Checks/Industry-Specific-Solutions/On-Demand/.

NOTE: Employment Screening Resources® (ESR) does not provide or offer legal services or legal advice of any kind or nature. Any information on this website is for educational purposes only.

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