It is time to revisit your independent contractors’ classification. On April 30, 2018, the California Supreme Court issued its opinion in Dynamex Operations West, Inc. v. Superior Court, and adopted the “ABC test” in determining independent contractor status for purposes of applying California’s wage orders. In the context of wage orders, the opinion specifically rejected the applicability of the test previously adopted by the Court’s 1989 opinion in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341.
Legal Landscape. California’s wage orders are issued by the Industrial Welfare Commission (“IWC”) and are “quasi-legislative regulations that have the force of law.” Wage orders create specific obligations for employers in the designated industry to follow concerning wages, overtime, and working conditions. Additional wage-and-hour protections also exist under the California Labor Code. Each wage order, except one, focuses on a specific industry; wage order No. 17 covers industries not covered by a previous wage order. The Department of Industrial Relations provides guidance to employers as to which wage order(s) cover their employees. https://www.dir.ca.gov/dlse/whichiwcorderclassifications.pdf. In Dynamex, wage order No. 9, which covers the transportation industry, was at issue.
Under California law, there are different independent contractor tests depending on the statutory scheme at issue. Prior to the Dynamex decision, the Supreme Court in Borello adopted a multi-factor independent contractor test in the workers’ compensation context, which has since been applied in most employment cases. The Borello test considers the most important factor as “whether the person to whom services is rendered has the right to control the manner and means of accomplishing the result desired,” and balances these additional nine factors:
(1) right to discharge at will, without cause;
(2) whether the one performing the services is engaged in a distinct occupation or business;
(3) the kind of occupation, with reference to whether in the locality the work is usually done under the direction of the principal or by a specialist without supervision;
(4) the skill required in the particular occupation;
(5) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
(6) the length of time for which the services are to be performed;
(7) method of payment, whether by the time or by the job;
(8) whether or not the work is part of the regular business of the principal; and
(9) whether or not the parties believe they are creating the relationship of employer-employee.
In dicta, the Court implies that the Borello test applies to all other wage-and-hour claims brought under the Labor Code.
The ABC Test. Under Dynamex, an individual will now be considered an independent contractor for purposes of a claim that a wage order has been violated if the individual:
(A) 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) performs work that is outside the usual course of the hiring entity’s business; and
(C) is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Next Steps. No matter what industry your business is in, if you have independent contractors in California, you should review whether your independent contractors meet the ABC test and if you need to provide any protections required by the applicable wage order. Improper classification of independent contractors can create liability for a multitude of wage-and-hour violations for the unwary business.