Recent Decision Sheds Light on California’s New Independent Contractor Test

Court of Appeal Finds ABC Test Only Applies to Wage-Order Claims

Determining whether to classify a worker as an independent contractor or an employee can be tricky business under California law. Add the significant risk associated with misclassifying workers as independent contractors, and the end result is a high stakes game of litigation roulette. Several months ago, we discussed the California Supreme Court’s decision to adopt a new test for classifying independent contractors in Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903. Under the new test, known as the “ABC” test, workers are presumed to be employees, unless the hiring entity can establish that workers: (A) are free from the control and direction of the hiring entity in connection with the performance of the work; (B) perform work that is outside the usual course of the hiring entity’s business; and (C) are customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. While it was obvious that Dynamex was a significant departure from California’s traditional “control” test, which turned on the degree of control that a hiring entity exerted over a worker, it was less clear how courts would apply this new test. A recent Court of Appeal decision both illuminates the impact of the Dynamex decision, and partially limits its harsh application.

Garcia v. Border Transportation Group, LLC, involved a taxi driver and the transportation company which leased the driver his taxicab. The company exerted very little control over the driver. For example, the company did not require the driver to remit fares, nor did the company require the driver to maintain trip logs or respond to a dispatch. The driver was free to set his own hours and breaks, select his own routes, set his own prices, he could use his taxicab for personal errands, enter into sublease agreements, and advertise services under whatever name he wanted. However, after an incident involving a disagreement over a $65 “shift charge” for returning a taxi late, the driver went to visit an attorney and  sued the company for (1) wrongful termination; (2) unpaid wages under the wage orders; (3) failure to pay minimum wage; (4) failure to pay overtime; (5) failure to provide meal and rest breaks; (6) failure to furnish accurate wage statements; (7) waiting time penalties; and (8) unfair competition.

The company, relying on the low-level of control that it maintained over the driver, argued the driver was an independent contractor. Citing pre-Dynamex case law, the trial court agreed and dismissed all of the driver’s claims. However, after the trial court issued its decision, the California Supreme Court issued its Dynamex decision. During review, the Court of Appeal found that under Dynamex the driver was an independent contractor because the company failed to prove that the driver was “customarily engaged in an independently established trade, occupation, or business,” which is part C of the ABC test. However, in an interesting twist, the court went onto to hold that Dynamex only applies to claims based on violations of the wage orders (e.g., unpaid overtime, meal and rest period violations, failure to pay minimum wage for all hours worked, etc.). For non-wage-order claims like wrongful termination, workers’ compensation claims, and waiting time penalties, courts will continue to apply the “control” test, which employers traditionally applied before Dynamex.

What This Means for Employers:

Practically speaking, the fact that the ABC test only applies to wage order claims does not warrant entirely doing away with using the ABC test to classify workers. Wage order claims, like unpaid overtime claims and meal and rest period violations, can still result in substantial liability to employers. As such, when trying to determine whether a worker is an independent contractor or employee, hiring entities should still start with the premise that the worker is an employee. From there, employers should work backward (start with part C) to ensure that the worker meets all three parts of the ABC test. For part C, it is important to understand that it is not sufficient that a worker has the capability to pursue an independent business. Instead, the worker must actually be promoting their services to other hiring entities. It is also important that employers understand that Garcia is not a guarantee that a worker will be barred from bringing non-wage-order claims (after all, it is still possible to misclassify workers under the “control” test). Rather, Garcia merely provides employers with a chance to limit some of their exposure to wage and hour claims based on misclassification theories. If your company is wrestling with how to classify a worker, or if you have any further questions about the ABC or “control” tests, please contact Barsamian & Moody at (559) 248-2360.

The goal of this article is to provide employers with current labor and employment law information. The contents should neither be interpreted as, nor construed as legal advice or opinion. The reader should consult with Barsamian & Moody at (559) 248-2360 for individual responses to questions or concerns regarding any given situation.