Labor Commissioner Broadens Application of Dynamex Decision

In Dynamex Operations West, Inc. v. Superior Court (2018), the California Supreme Court adopted a strict “ABC test” redefining “independent contractor”:

1. The worker is free from the hirer’s control and direction in connection with the performance of the work, both under the contract in fact;
2. The worker performs work outside the usual course of the hiring entity’s business; and
3. 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.

However, Dynamex does not apply across the boards, covering only the California Wage Order employee protections (e.g., minimum wage and overtime issues, deprivation of meal and rest periods, and record-keeping and itemized wage statement requirements). The traditional “balancing test” definition of independent and control factors continues to determine the scope of other workplace laws, including workers’ compensation and unemployment benefits.

Undertaking to eliminate at least some of the resulting uncertainty, the California Labor Commissioner’s office May 3, 2019 opinion letter asserts the ABC test should apply to all California Labor Code provisions intended to enforce Wage Order protections, including Labor Code section 226 (itemized pay stub obligations); 226.7 (meal, rest and cool-down recovery periods); 512 (meal periods); 1182.12; 1194.2 and 1197 (minimum wage); and 510 and 1194 (overtime provisions).

The letter further contends the ABC test should apply to Labor Code section 2802 expense reimbursement claims for those expenses set forth in the Wage Orders (e.g., tools, uniforms and equipment).

The letter also declares the ABC test applies to Labor Code section 203 (which penalizes employers for any wages that are not paid at the time of termination) under certain circumstances: “[W]here section 203 serves to enforce the underlying minimum wage and overtime obligations of the wage orders, application of the ABC test to these claims would be appropriate.”

Although the courts need not follow such Labor Commissioner interpretations, the letter indicates the ABC test is gaining momentum, with the Labor Board determined to broaden Dynamex’s application.

Best practices to avoid or minimize independent contractor misclassification claims include:

• Carefully evaluate any ongoing independent contractor relationships together with knowledgeable legal counsel.
• Update independent contractor agreements to adequately address the ABC test.
• Consider implementing arbitration provisions with class action waivers.
• As needed, re-classify independent contractors to employees with all proper employee hiring paperwork. See The Best Offense is a Good Defense (June, 2019).
• Promptly work with knowledgeable legal counsel if the company receives any government agency misclassification-related notice, inquiry or audit. See, For Whom the Bell Tolls (April, 2019).

See also:

• Making Dynamex Retroactive (May, 2019)
• Independent Contractor or Employee? (April, 2019)
• Independent Contractor Status? It Depends (November, 2018)
• Game Changer (June, 2018)

For further assistance, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth

June 7, 2019