New Independent Contractor Law - 2018

The California Supreme Court case of Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County  tightens the law regarding who is or is not an independent contractor at a business.

The April 2018 court ruling states that workers are assumed to be employees unless all three of these factors can be proven:

(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 stated:

"In the underlying lawsuit in this matter, two individual delivery drivers,
suing on their own behalf and on behalf of a class of allegedly similarly situated
drivers, filed a complaint against Dynamex Operations West, Inc. (Dynamex), a
nationwide package and document delivery company, alleging that Dynamex had
misclassified its delivery drivers as independent contractors rather than employees.
The 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, that Dynamex had engaged in unfair and unlawful business practices under
Business and Professions Code section 17200.

Prior to 2004, Dynamex classified as employees 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."

Ultimately, the California Supreme Court decided:

"As a consequence, we conclude it is appropriate, and most consistent with the history and purpose of the suffer or permit to work standard in California’s wage orders, to interpret that standard as: (1) placing the burden on the hiring entity to establish that the worker is an independent
contractor who was not intended to be included within the wage order’s
coverage;24 and (2) requiring the hiring entity, in order to meet this burden, to
establish each of the three factors embodied in the ABC test — namely (A) that
the worker is 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; and (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."

In the end this was the Court's analysis:

"Part A.  Is the worker free from the control and direction of the
hiring entity in the performance of the work, both under the contract
for the performance of the work and in fact?

First, as our decision in Martinez makes clear (Martinez, supra, 49 Cal.3d
at p. 58), the suffer or permit to work definition was intended to be broader and
more inclusive than the common law test, under which a worker’s freedom from
the control of the hiring entity in the performance of the work, both under the
contract for the performance of the work and in fact, was the principal factor in
establishing that a worker was an independent contractor rather than an employee.
Accordingly, because a worker who is subject, either as a matter of contractual
right or in actual practice, to the type and degree of control a business typically
exercises over employees would be considered an employee under the common
law test, such a worker would, a fortiori, also properly be treated as an employee
for purposes of the suffer or permit to work standard. Further, as under Borello,
supra, 48 Cal.3d at pages 353-354, 356-357, depending on the nature of the work
and overall arrangement between the parties, a business need not control the
precise manner or details of the work in order to be found to have maintained the necessary control that an employer ordinarily possesses over its employees, but does not possess over a genuine independent contractor. The hiring entity must establish that the worker is free of such control to satisfy part A of the test.

Part B: Does the worker perform work that is outside the usual
course of the hiring entity’s business?

Second, independent of the question of control, the child labor antecedents
of the suffer or permit to work language demonstrate that one principal objective
of the suffer or permit to work standard is to bring within the “employee” category all individuals who can reasonably be viewed as working “in the [hiring entity’s] business” (see Martinez, supra, 49 Cal.4th at p. 69, italics added), that is, all individuals who are reasonably viewed as providing services to the business in a role comparable to that of an employee, rather than in a role comparable to that of a traditional independent contractor. (Accord Rutherford Food, supra, 331 U.S. at
p. 729 [under FLSA, label put on relationship by hiring business is not controlling
and inquiry instead focuses on whether “the work done, in essence, follows the
usual path of an employee’].) Workers whose roles are most clearly comparable
to those of employees include individuals whose services are provided within the
usual course of the business of the entity for which the work is performed and thus
who would ordinarily be viewed by others as working in the hiring entity’s
business and not as working, instead, in the worker’s own independent business.
Thus, on the one hand, when a retail store hires an outside plumber to repair
a leak in a bathroom on its premises or hires an outside electrician to install a new
electrical line, the services of the plumber or electrician are not part of the store’s
usual course of business and the store would not reasonably be seen as having suffered or permitted the plumber or electrician to provide services to it as an
employee. (See, e.g., Enforcing Fair Labor Standards, supra, 46 UCLA L.Rev. at
p. 1159.) On the other hand, when a clothing manufacturing company hires workat-home
seamstresses to make dresses from cloth and patterns supplied by the
company that will thereafter be sold by the company (cf., e.g., Silent Woman, Ltd.,
supra, 585 F.Supp. at pp. 450-452; accord Whitaker House Co-op, supra, 366 U.S.
28), or when a bakery hires cake decorators to work on a regular basis on its
custom-designed cakes (cf., e.g,, Dole v. Snell (10th Cir. 1989) 875 F.2d 802,
811), the workers are part of the hiring entity’s usual business operation and the
hiring business can reasonably be viewed as having suffered or permitted the
workers to provide services as employees. In the latter settings, the workers’ role within the hiring entity’s usual business operations is more like that of an
employee than that of an independent contractor.
Treating all workers whose services are provided within the usual course of
the hiring entity’s business as employees is important to ensure that those workers
who need and want the fundamental protections afforded by the wage order do not
lose those protections. If the wage order’s obligations could be avoided for
workers who provide services in a role comparable to employees but who are
willing to forgo the wage order’s protections, other workers who provide similar
services and are intended to be protected under the suffer or permit to work
standard would frequently find themselves displaced by those willing to decline
such coverage. As the United States Supreme Court explained in a somewhat
analogous context in Alamo Foundation, supra, 471 U.S. at page 302, with respect
to the federal wage and hour law: “[T]he purposes of the [FLSA] require that it be
applied even to those who would decline its protections. If an exception to the Act
were carved out for employees willing to testify that they performed work
‘voluntarily,’ employers might be able to use superior bargaining power to coerce
employees to make such assertions, or to waive their protections under the Act. [Citations.] Such exceptions to coverage would affect many more people than
those workers directly at issue in this case and would be likely to exert a general
downward pressure on wages in competing businesses.” (Ibid.)
As the quoted passage from the Alamo Foundation case suggests, a focus
on the nature of the workers’ role within a hiring entity’s usual business operation
also aligns with the additional purpose of wage orders to protect companies that in
good faith comply with a wage order’s obligations against those competitors in the
same industry or line of business that resort to cost saving worker classifications
that fail to provide the required minimum protections to similarly situated workers.
A wage order’s industry-wide minimum requirements are intended to create a level playing field among competing businesses in the same industry in order to
prevent the type of “race to the bottom” that occurs when businesses implement
new structures or policies that result in substandard wages and unhealthy
conditions for workers. (Accord Gemsco, Inc. v. Walling (1945) 324 U.S. 244,
252 [“[I]f the [proposed restrictions on homeworkers] cannot be made, the floor
for the entire industry falls and the right of the homeworkers and the employers to
be free from the prohibition destroys the right of the much larger number of
factory workers to receive the minimum wage”]; see generally Enforcing Fair
Labor Standards, supra, 46 UCLA. L.Rev. at pp. 1178-1103.) Competing
businesses that hire workers who perform the same or comparable duties within
the entities’ usual business operations should be treated similarly for purposes of
the wage order.

Accordingly, a hiring entity must establish that the worker performs work
that is outside the usual course of its business in order to satisfy part B of the ABC
test.

Part C: Is the worker customarily engaged in an independently
established trade, occupation, or business of the same nature as the
work performed for the hiring entity?

Third, as the situations that gave rise to the suffer or permit to work
language disclose, the suffer or permit to work standard, by expansively defining
who is an employer, is intended to preclude a business from evading the
prohibitions or responsibilities embodied in the relevant wage orders directly or
indirectly — through indifference, negligence, intentional subterfuge, or
misclassification. It is well established, under all of the varied standards that have
been utilized for distinguishing employees and independent contractors, that a
business cannot unilaterally determine a worker’s status simply by assigning the
worker the label “independent contractor” or by requiring the worker, as a condition of hiring, to enter into a contract that designates the worker an
independent contractor. (See, e.g., Borello, supra, 48 Cal.3d at pp. 349, 358-359;
Rutherford Food, supra, 331 U.S. at p. 729.) This restriction on a hiring
business’s unilateral authority has particular force and effect under the wage
orders’ broad suffer or permit to work standard.
As a matter of common usage, the term “independent contractor,” when
applied to an individual worker, ordinarily has been understood to refer to an
individual who independently has made the decision to go into business for
himself or herself. (See, e.g., Borello, supra, 48 Cal.3d at p. 354 [describing
independent contractor as a worker who “has independently chosen the burdens
and benefits of self-employment”].) Such an individual generally takes the usual
steps to establish and promote his or her independent business — for example,
through incorporation, licensure, advertisements, routine offerings to provide the
services of the independent business to the public or to a number of potential
customers, and the like. When a worker has not independently decided to engage
in an independently established business but instead is simply designated an
independent contractor by the unilateral action of a hiring entity, there is a substantial risk that the hiring business is attempting to evade the demands of an
applicable wage order through misclassification. A company that labels as
independent contractors a class of workers who are not engaged in an
independently established business in order to enable the company to obtain the
economic advantages that flow from avoiding the financial obligations that a wage
order imposes on employers unquestionably violates the fundamental purposes of
the wage order. The fact that a company has not prohibited or prevented a worker from engaging in such a business is not sufficient to establish that the worker has
independently made the decision to go into business for himself or herself
Accordingly, in order to satisfy part C of the ABC test, the hiring entity
must prove that the worker is customarily engaged in an independently established
trade, occupation, or business.

Comments

Popular posts from this blog

California Breach of Contract Law Simplified

California Employment Law - PAGA (Manageable v. Unmanageable Wage Claims)

City of Los Angeles - Mandatory Paid Sick Leave (Potholes and Pitfalls)