Governing Tests For Employee/Independent Contractor Classification

In Dynamex Operations West, Inc. v. Superior Court of Los Angeles County (2018) 4 Cal. 5th 903 the court considered “what standard applies, under California law, in determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders, which impose obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees.” (Id. at 913-914.)

Understanding the Applicable Standard Under Dynamex

What is the applicable standard for determining whether a worker is properly considered an employee or an independent contractor?

The court concluded that “the wage order's suffer or permit to work definition must be interpreted broadly to treat as "employees," and thereby provide the wage order's protection to, all workers who would ordinarily be viewed as working in the hiring business.” (Id. at 916.)

The court further concluded 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. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes:

1. 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;
2. that the worker performs work that is outside the usual course of the hiring entity's business; and
3. 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.”

(Id. at 916-917.)

“Dynamex applied the ‘suffer or permit to work’ standard contained in the wage order without deciding what standard applied to non-wage-order claims, such as claims for reimbursement of fuel or tolls under Labor Code, section 2802.” (Garcia v. Border Transportation Group, LLC (2018) 28 Cal. App. 5th 558, 571.) In Garcia, the California Court of Appeals determined that there is “no reason to apply the ABC test categorically to every working relationship, particularly when Borello appears to remain the standard for worker’s compensation.” (Id.) “In the absence of an argument that the statutory purposes underlying those claims compel application of a different standard,” the Garcia court concluded that “Borello furnishes the proper standard as to [appellant’s] non-wage-order claims.” (Id.)

Three Prongs of Dynamex

Under the Dynamex test, a worker is presumed to be an employee unless the hiring entity establishes each of the three prongs. (Garcia, supra, 28 Cal.App.5th at 569; see also Dynamex, supra, 4 Cal.5th at 964.) However, weighing in Defendants’ favor, the “existence of an employment relationship is a question for the trier of fact, [that] can be decided by the court as a matter of law if the evidence supports only one reasonable conclusion.” (Beaumont-Jacques v. Farmers Group, Inc. (2013) 217 Cal. App. 4th 1138, 1143.)

The first prong requires the hiring entity to establish 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.” (Dynamex, supra, 4 Cal.5th at 916.) This prong involves Borello’s common law “control” test, recognizing that “a business need not control the precise manner or details of the work in order to have maintained the necessary control” for an employer-employee relationship. (Garcia, supra, 28 Cal.App.5th at 569.) The focus is therefore whether the worker is subject to the “type and degree of control a business typically exercises over employees.” (Dynamex, supra, 4 Cal. 5th at 958.)

The second prong requires the hiring entity to establish that the worker performs work that is outside the usual course of the hiring entity’s business. (Dynamex, supra, 4 Cal. 5th at 916-17.) “This inquiry turns on whether the worker is ‘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.’ [Citation.] A plumber hired by a retail store would not be considered an employee; by contrast, a cake decorator servicing a bakery for custom cakes, or an at-home seamstress sewing dresses from patterns supplied by a clothing manufacturer, would.” (Garcia, supra, 28 Cal. App. 5th at 569-70.)

The third prong requires the hiring entity to establish 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. (Dynamex, supra, 4 Cal. 5th at 916-17.) The inquiry is whether the worker fits the common conception of an independent contractor — “an individual who independently has made the decision to go into business for himself or herself” and “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.” (Garcia, supra, 28 Cal. App. 5th at 573.) This prong “requires that the worker is engaged in an independent business, not that he or she could have become so engaged.” (Id. at 570.)

The “Common Law” Test

The holding of S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal. 3d 341, provided the basis of what is known as the "Control Test" holding in pertinant part, “as a matter of law on the undisputed facts that the "sharefarmers" are "employees" entitled to compensation coverage.”

Under Borello, “[t]he determination of employee or independent-contractor status is one of fact if dependent upon the resolution of disputed evidence or inferences.... (Germann v. Workers' Comp. Appeals Bd. (1981) 123 Cal.App.3d 776, 783.) If the evidence is undisputed, the question becomes one of law (Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 951.) “The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.” (Kowalski v. Shell Oil Co. (1979) 23 Cal. 3d 168, 176; Tieberg, supra, 2 Cal.3d at p. 952; Truesdale v. Workers' Comp. Appeals Bd. (1987) 190 Cal. App. 3d 608, 614 [235 Cal. Rptr. 754]; Martin v. Phillips Petroleum Co. (1974) 42 Cal. App. 3d 916, 922-923.)

The "control" test requires courts to engage in a fact-specific analysis to determine whether a staffing agency exercised sufficient control over an interview to establish an employment relationship. (See Gunawan v. Howroyd–Wright Employment Agency (2014) 997 F.Supp.2d 1058.)

Application of the Common Law Test

Under the common law test (also articulated in Borello) the principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. (Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, 531.) What matters is whether the hirer “retains all necessary control” over its operations. (Id.) Courts may also consider

1. whether the one performing services is engaged in a distinct occupation or business;
2. 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;
3. the skill required in the particular occupation;
4. whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
5. the length of time for which the services are to be performed;
6. the method of payment, whether by the time or by the job;
7. whether or not the work is a part of the regular business of the principal; and
8. whether or not the parties believe they are creating the relationship of employer-employee.

(Id. at 532.)

Under Borello, the court highlighted how, “the common law tests were developed to define an employer's liability for injuries caused by his employee, [because] ‘the basic inquiry in compensation law involves which injuries to the employee should be insured against by the employer.’” (Borello, supra, 48 Cal. 3d. at 352.)

The “Control” Test

The Borello Court articulated the historical and legal significance of the the distinction between employee and independent contractor, stating in relevant part, “[t]he meaning and content of the statutory control test has been clear since at least 1947 when this court explained: ‘An independent contractor is one who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.’” (Id. citing Lab. Code, § 3353.)

“The distinction between the status of an independent contractor and that of an employee rests upon several important considerations.” (Id.) “A material and often conclusive factor is the right of an employer to exercise complete and authoritative control of the mode and manner in which the work is performed.” (Id.) “The existence of such right of control, and not the extent of its exercise, gives rise to the employer-employee relationship.” (Borello, supra, 48 Cal. 3d at 367 citing S. A. Gerrard Co. v. Industrial Acc. Com., (1941) 17 Cal. 2d 411, 413-414; Riskin v. Industrial Acc. Com.(1943) 23 Cal. 2d 248, 253; Industrial Indemnity Exchange v. Industrial Acc. Com. (1945) 26 Cal. 2d 130, 135.)