Dynamex Operations West, Inc. v. Superior Court – The Impact of the California Supreme Court’s New “ABC Test” on Independent Contractor Status
The term “independent contractor” is thrown around by nearly everybody who is of working age. Most people who use this phrase have no idea that “independent contractor” is a legal status, not a label that can be placed an employee by an employer – the status itself has a profound impact on an employee’s rights. Put simply, whether you are an “independent contractor” is a question of fact that exists independently of the subjective beliefs of both the employer and employee (prior to Dynamex Operations West, Inc. v. Superior Court 4 Cal.5th 903 (2018), the subjective beliefs of the parties are a secondary factor to consider pursuant to the factors set forth in S.G. Borello & Sons, Inc v. Department of Industrial Relations 48 Cal.3d 341 (2014)).
This article will address: (1) A brief overview of the rights afforded to employees, as opposed to “independent contractors”, under the relevant wage orders, (2) A brief history of the employee/”independent contractor” distinction, (3) A brief overview of the Borello factors, (4) A brief overview of the Dynamex “ABC Test”, and (5) A brief overview of the impact that the Dynamex case will have on the status of “independent contractor.”
What Rights Do I Have as an “Employee”?
Without getting into all the nuances of employment law, the Industrial Wage Commission (“IWC”) has issued seventeen (17) wage orders governing virtually every industry. Again, for the sake of simplicity, these wage orders dictate the rights of employees in the covered industry; provided the employee is not exempt (exemptions are beyond the scope of this article but will be discussed in another article). A quick way to determine which wage order applies to you can be found here (use the search function to quickly find your occupation and related wage order). Once you have found out which wage order applies to you, a list of those wage orders can be found here. We will use Wage Order No.4 -2011 for this section.
Hours and Days of Work – Section 3 encompasses, generally, the rules governing overtime. For example, an employee (as opposed to “independent contractor”) is entitled to 1 ½ their rate of pay for each hour worked beyond eight (8) hours in a day, for each hour worked over forty (40) in a workweek, or for the first eight (8) hours worked on the seventh (7th) consecutive work day in a work week. Further, an employee is entitled to double their rate of pay for each hour worked beyond twelve (12) hours in a workday, and all hours worked more than eight (8) hours on the employees seventh (7th) consecutive work day in a given workweek.
Meal Periods – Section 11 governs the rules pertaining to meal periods. An employee is entitled to a duty-free meal break of thirty (30) for every shift exceeding five (5) hours unless the employee’s shift is scheduled for less than six (6) hours. Many employees do not know this, but a break where you are required to remain on-call is non-compliant with the wage order (unless there is a valid on duty meal period agreement “ODMPA”, which is beyond the scope of this article). If you have not been given a proper meal period, the employee is entitled to one (1) hour of pay, this is called “premium pay.”
Rest Periods – Section 12 governs the rules pertaining to rest periods. An employee is entitled to a duty-free rest period of ten (10) minutes for every four (4) hours that employee works. Much like meal periods, though far harder to prove, an employee who is not provided a compliant rest break is entitled to one (1) hour of regular pay, this is also “premium pay.” It should be noted that the law only allows “premium pay” penalties for one (1) missed meal period per day, and one (1) missed rest period per day.
While this list is not complete, these are common areas where the distinction between “employee” and “independent contractor” are most important; if you are misclassified as an “independent contractor”, when you are in fact an “employee”, your employer may not be paying you overtime properly, giving you rest and meal breaks, and paying you “premium pay” for those missed breaks – this can add up to a significant sum of money.
Example: Eric Employee has been misclassified as an “independent contractor” for the last four (4) years. Eric makes $10.00 per hour and works five (5) days per week – he has never received a meal or rest break. Using premium pay alone, Eric is entitled to (208 weeks [52*4] x 5 days per week x 2 [premium pay for both missed breaks] x $10.00 per hour) $20,800.00 in unpaid premium pay.
As you can see, being improperly classified can have a negative financial impact on “employee”, and a positive financial impact on the employer. The next section will briefly address how we got to our modern understanding of the distinction between an employee and an “independent contractor.”
The History of the Employee/Independent Contractor Distinction
Prior to 1989, when the California Supreme Court issued its decision in Borello, the Courts utilized the common law concept of “control of the details” to determine whether someone was an employee or an “independent contractor” in situations such as unemployment insurance (Tieberg v. Unemployment Ins. App. Bd 2 Cal.3d 943 (1970)). Other Courts identified “secondary factors” to be considered when determining whether an individual was an employee or an “independent contractor.” This set the stage for the Borello decision.
The Borello Factors
At the time of the Borello case, previous case law had essentially established that the primary factor, when determining whether someone was an employee or an “independent contractor”, was “control of the details.” Numerous other cases had identified a plethora of “secondary factors”, and the California Supreme Court established the test to determine whether an individual was properly classified as an “independent contractor” who would not gain the benefits of certain protections and “employees” who would gain the benefits of those protections. The “secondary factors” included:
Until the Dynamex decision, any questions regarding an individual’s status as an employee or an “independent contractor” was resolved by first analyzing the “control of the details” test, and then looking at the “secondary factors” listed above. This test was used for all issues where the classification of an individual was determinative of their rights under the law. In 2018, the California Supreme Court changed the rules as it relates to an individual’s rights under Industrial Welfare Commission’s Wage Orders (see above for a discussion of IWC Wage Orders). As we will discuss below, the test for whether an individual is an “independent contractor” for purposes of the gaining the protections afforded to employees under the relevant Wage Orders, the California Supreme Court adopted the “ABC Test.”
Dynamex and the “ABC Test”
On April 30, 2018 the California Supreme Court issued a decision that changed the legal landscape as it relates to the status of an individual as an employee or “independent contractor” for purposes of gaining the benefits afforded by the various Wage Orders. As mentioned above, this has significant implications as it relates to “premium pay” and overtime pay. The “ABC Test” starts with the presumption that all individuals who are working for another person are employees. This presumption places the burden on the employer to satisfy all three (3) prongs of the “ABC Test” to classify an individual as an “independent contractor.” The three (3) prongs of the “ABC Test”, which must be proven in the affirmative, are:
What Impact Does Dynamex Have on the Employee/” Independent Contractor” Distinction
As mentioned above, the Dynamex case placed the burden on the employer to show that the “ABC Test” was satisfied in favor of finding that an individual is an “independent contractor.” This burden, in turn, makes it much more difficult for an employer to gain the benefit of calling an individual an “independent contractor” while simultaneously protecting workers rights under the wage order. Dynamex did not affect employee benefits outside the Wage Order context, and the Court went to great lengths to make that clear. The bottom line after the Dynamex case is this: if you are currently classified as an “independent contractor”, and you are not receiving overtime or “premium pay”, it may be in your best interest to contact an attorney today.
At Yeremian Law, we have ample experience pursuing claims for misclassification and obtaining the benefits our employees would have received had they been properly classified as employees in the first place. This is not exploiting a loophole in the law, it is pursuing what you were entitled to in the first place. Contact us today for a consultation!
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