High Court IDs Test to Distinguish Employees From Contractors

Alan Gurvey, managing partner of Rowen, Gurvey & Win in Sherman Oaks, on Monday afternoon said that the Dynamex decision will put more pressure on employers to follow the new test when deciding whether people are entitled to employment rights, including workers’ compensation coverage.

California’s Supreme Court on Monday laid down a simple, three-part test to determine whether a person is an employee of an independent contractor, in a ruling that could have implications for workers’ compensation and the gig economy.

The three-part test the court created in Dynamex Operations West Inc. v. Superior Court of Los Angeles County (Lee) asks whether a worker:

§  Is free from control and direction in the performance of work.

§  Is performing work outside the scope of the hiring entity’s business.

§  Is customarily engaged in an independently established trade.

If the answer to any of the three questions is “no,” a person is an employee subject to various labor law protections, including minimum wages, and meal and rest periods. 

Though the high court proposed the test for the purposes of wage violations, the new test could also be useful to determine whether a person is an employee who has to be covered by workers’ compensation.

Applicants’ attorney Alan Gurvey, managing partner of Rowen, Gurvey & Win in Sherman Oaks, on Monday afternoon said that the Dynamex decision will put more pressure on employers to follow the new test when deciding whether people are entitled to employment rights, including workers’ compensation coverage.

He said the decision “probably provides a stricter definition of employee” than the court did in a 1989 case currently used to determine whether an applicant is a contractor or an employee.

The high court nearly 30 years ago said agricultural laborers S.G. Borello & Sons Inc. hired under “sharefarmer” agreements were employees because the company retained “all necessary control over a job which can be done only one way.”

The court also said in Borello v. Department of Industrial Relations that the workers were not operating independent businesses for their own accounts, and the workers and their families were part of the broad class that was intended to have the protections of workers’ compensation coverage.

In Borello, the court said the control-of-work test must be applied with deference to the reason the workers’ compensation system was created. The nature of work and the arrangement between the parties must be examined to determine whether they fall under the purpose of the grand bargain, the court said.

Gurvey said that the three-pronged test proposed in Dynamex may be stricter, from the perspective of employers, than the Borello standard, which requires an evaluation of the nature of the agreement and statutory intent. He said the ruling could signal that the Supreme Court is taking a more liberal and pro-worker stance.

“It certainly puts the issue of gig work into question and employers who capitalize on the gig work who may have more responsibility when it comes to work injuries,” Gurvey said.

Kevin Ruf, a partner with Glancy, Prongay & Murray in Los Angeles who represented a worker suing Dynamex, said he agrees that the decision will likely have significant implications for workers in the gig economy.

Ruf on Monday said that with employers having to satisfy each of the three prongs of the newly created test, it would be difficult for a company such as Uber to argue that drivers aren’t an integral part of its business. Uber, in court filings defending against allegations of misclassification, argues that it is a software developer.

While Dynamex may have “huge implications for places like Uber,” Ruf said, he thinks Borello is “still safe as the case in the comp environment.”

The court in Borello was specifically looking at the question of employee versus contractor in the work comp setting, he said. In Dynamex, the question of worker classification was asked for the purposes of a wage violation.

The Supreme Court’s opinion, written by Chief Justice Tani Cantil-Sakauye, rejects a standard adopted by other jurisdictions that deciding whether a worker is an employee or an independent contractor depends on numerous factors. It also rejected an “economic reality test” used by federal courts in Fair Labor Standards Act cases that holds that all of the circumstances must be considered together to decide whether a worker is an employee.

Opting for simplicity, the justices decided that the so-called “ABC test” used by some jurisdictions is best suited for deciding if a person is an employee or a contractor. The principle holds that workers are independent contractors only if each of three conditions are met. A footnote in the opinion states that both Massachusetts and New Jersey use the ABC standard.

Dynamex had used employees to deliver packages up until 2004, when it decided to require all its drivers to sign agreements stating that they are independent contractors. The company allowed drivers to work any day of the week they wished, but they had to notify the company if they were not going to deliver any of the packages that they were assigned, and had to complete all deliveries by the end of each business day.

Charles Lee and other drivers filed suit, and a Los Angeles County Superior Court judge ruled that together they could pursue a class-action lawsuit against the company. The class consisted of all who drove for Dynamex and did not deliver for other companies.

The trial court rejected Dynamex’s argument that it should use the “multi-factor” standard established in Borello for distinguishing between employees and independent contractors. Dynamex appealed after the trial court rejected its motion to decertify the class, but the Court of Appeal declined to overturn the judge’s order, as did the Supreme Court.

"In our view, this interpretation of the suffer or permit to work standard is faithful to its history and to the fundamental purpose of the wage orders, and will provide greater clarity and consistency, and less opportunity for manipulation, than a test or standard that invariably requires the consideration and weighing of a significant number of disparate factors on a case-by-case basis."

Originally published on WorkCompCentral by Greg Wilson