Wage and Hour Case Notes

• Jurisdiction: California,United States,Federal
• Author: By Leonard H. Sansanowicz
• Publication year: 2018
• Citation: Vol. 32 No. 4

Wage and Hour Case Notes

By Leonard H. Sansanowicz

Leonard H. Sansanowicz is the principal of Sansanowicz Law Group, P.C. and represents employees in all aspects of employment law. He has been a Super Lawyers Southern California Rising Star each year from 2013 to 2018, and for the past four years has been named to their Up-and-Coming 100 list. He also is a member of the Executive Board of the California Employment Lawyers Association. He can be contacted at: leonard@law-slg.com.

California Supreme Court Finds the ABC Standard, Not S.G. Borello & Sons, Is the Proper Standard to Analyze Employee vs. Independent Contractor Status

Dynamex Operations West, Inc., v. Superior Court (Lee), 4 Cal. 5th 903 (2018)

In 2010, the California Supreme Court issued the seminal case of Martinez v. Combs.¹ Martinez confirmed that, as defined in the wage order,² the term "employ" had three alternative definitions: "(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."³ The Martinez court clarified the wage order definition of "employer" for the purpose of determining an entity's status as a joint employer.

Eight years later, the high court has applied the "suffer or permit" prong (i.e., work that was performed that the employer knew or should have known about) to the issue of whether workers should be classified as independent contractors or employees for the purpose of determining whether they are entitled to the wage order's protections.

In Dynamex, the court held the wage order definition must be interpreted broadly, such that the default classification for all workers who ordinarily would be viewed as "working in the hiring business" is presumptively as employees, and hiring entities as employers. The court adopted the "ABC" test from other jurisdictions in holding that workers would lose their wage order protections and be properly classified as independent contractors only if the hiring entity could establish: "(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 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."⁴

Dynamex argued that the multi-factor standard from S.G. Borello & Sons, Inc. v. Department of Indus. Relations⁵ (primarily whether the employing entity held the right to control the manner and means by which workers performed their work, as well as nine secondary factors) should control as the only appropriate standard for determining employee or independent contractor status. The company further argued that Martinez was only meant to apply to the issue of joint employment, and not to the definition of employee status. The Dynamex court rejected both of these arguments, opting instead to create a more expansive approach and to place the burden of proof on the hiring entity to establish each of the ABC factors before it could classify its workers as independent contractors. The high court recognized it may be easier and clearer in many cases to determine parts B or C of the analysis rather than having to resolve first how free a worker is from the hirer's direction and control, and thus empowered trial courts to consider the separate parts of the ABC standard in whichever order they choose.

The Dynamex court further clarified that because California adopted the "suffer or permit" standard before the Fair Labor Standards Act was enacted, the wage order was not intended to embrace the federal economic reality test, as a matter of legislative intent. Rather, the wage order was to provide broader protections. While the court also held that the "suffer or permit" standard was the applicable standard for analyzing employee status, it took no position on whether the first Martinez definition of "employ," exercising control over the wages, hours or working conditions, applied outside the joint employer context.

The high court provided a background of relevant California judicial decisions to explain how it arrived at its decision, explaining that pre-Borello courts focused on the common law "control of the details" test, which arose in the tort context. The Dynamex court then delved into a lengthy review of Borello's contributions to the discussion. Borello, which analyzed the employee/independent contractor status of farmworkers for purposes of California's workers' compensation statutes, explained that "the concept of 'employment' in the [workers' compensation act] is not inherently limited by common law principles

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. . . [but] must be construed with particular reference to the 'history and fundamental purposes' of the statute. [Citation.]"⁶ The Borello court further noted that "under the Act, the 'control-of-work-details' test for determining whether the person rendering service to another is an 'employee' or an excluded 'independent contractor' must be applied...