Presumed Employee: California Supreme Court Reverses Old Classification Test for Delivery Drivers in Wage and Hour Class Actions
On April 30, 2018, California’s high court unanimously ruled in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County that certain workers should be presumed employees instead of independent contractors when evaluating wage and hour classification in class action cases. The opinion is certain to have immediate and expansive reverberations throughout the trucking and transportation industry, which has seen a dramatic increase in the number of wage and hour class actions brought by drivers claiming to have been misclassified. The ruling in Dynamex is likely to exacerbate the number of these misclassification cases and make their defense more rigorous as the burden is now on the hiring entity to establish that the worker is an independent contractor not intended to be treated as an employee.
In Dynamex, 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. Dynamex contended that, in light of its contractual arrangement with the drivers, the drivers were properly classified as independent contractors.
The issue in Dynamex was whether, in a wage and hour class action alleging that the plaintiffs have been misclassified, a class may be certified based on the Industrial Welfare Commission wage order No. 9’s definition of “employ” as “suffer or permit to work” or, instead, whether the multi-factor Borello standard should be applied. The Borello standard, announced in the seminal 1989 Supreme Court case Borello v. Department of Industrial Relations, was a weighted nine-part test grounded in the question of control.
The Dynamex Court concluded that the Industrial Welfare Commission wage order No. 9’s “suffer or permit to work” standard, and not the long-established multifactor Borello standard, was the appropriate standard for distinguishing employees from independent contractors. The wage order standard was interpreted by the Supreme Court 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; 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.” A hiring entity’s failure to satisfy any one of the three-part ABC test establishes that the worker should be treated as an employee for purposes of the wage order.
While the Dynamex opinion specifically carves out application of the “suffer or permit to work” standard for traditional independent contractor relationships (e.g., plumbers, electricians, architects, etc.), the ruling will have significant consequences in the transportation industry. Traditionally, transportation companies have argued, per the Borello standard, that they did not have sufficient control over the driver for the driver to be deemed an employee. The turn by the Supreme Court away from the Borello standard, and instead to a presumption of employment, will require that many transportation companies re-evaluate their relationship with independent contractors in California.