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California’s “ABC” Independent Contractor Test Not Applicable to All Wage Hour Claims

by D. Gregory Valenza | | November 13, 2018

You may recall that earlier this year, the California Supreme Court held in Dynamex Ops. West v. Superior Court that “independent contractors” are treated as employees under the Industrial Wage Commission’s Wage Orders. unless they satisfy each element of the so-called “ABC” test.  If you want a refresher on the ABC test, we posted  here, and wrote an article here.  

The Dynamex case was a biggie, as many so-called independent contractor relationships will fail one or more elements of the ABC test.  However, the California Supreme Court in Dynamex made things more complicated when it wrote that the ABC test applies only to the determination of whether a worker is an employee for purposes of the Wage Orders. Although the Wage Orders cover a variety of issues (minimum wage, overtime, meals, breaks, suitable seats, and more), they do not cover other issues (e.g., waiting time penalties, expense reimbursement, vacation pay, and other issues).  The California high court declined to hold that the ABC test applied to any types of employment claims other than those based on violation of the Wage Orders. The Court also recognized that employers might be faced with applying multiple tests to the same employee / independent contractor. 

And that brings us to Garcia v. Border Transportation Group, LLC (here).    

Garcia brought claims under the applicable Wage Order (#9) and under a variety of statutes.  Garcia was a taxi driver for Border Transportation, which operated a fleet of cabs.  He was treated as an independent contractor. He worked for several years, but then ended his contract after a dispute over fees. He sued Border for wrongful termination in violation of public policy, and a variety of wage and hour claims, some of which are based on the wage order and some not.

The trial court applied the pre-ABC test analysis to the case; namely, the California Supreme Court’s multi-factor test contained in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.  The lower court granted summary judgment to Border, holding that Garcia was an independent contractor under the Borello analysis.  But, while the case was on appeal, the California Supreme Court issued Dynamex and the ABC test. So, the Court of Appeal’s job was to decide whether Dynamex rescued Garcia’s case – or part of it

The appellate court, hampered by a plaintiff who did not timely oppose Border’s summary judgment motion, reversed the trial court’s ruling insofar as it granted summary judgment on the Wage Order claims:

Of the eight causes of action alleged in Garcia’s complaint, five arise under the wage order: unpaid wages, failure to pay minimum wage (which may overlap), failure to provide meal and rest periods, failure to furnish itemized wage statements, and UCL claims based on the foregoing. These claims are governed by the “suffer or permit to work” standard described in Dynamex. 

Garcia’s remaining causes of action do not arise under the wage order. The wage order’s overtime regulations do not apply to taxicab drivers. (Cal. Code Regs., tit. 8, § 11090, subd. 3(M).) Likewise, the wage order does not encompass claims for wrongful termination in violation of public policy or waiting time penalties. Accordingly, Garcia’s claims for overtime, wrongful termination, waiting time penalties, and UCL claims resting on the foregoing are governed by the common law test articulated in Borello. 

 *  * * *

Dynamex makes clear that the question in part C is not whether BTG prohibited or prevented Garcia from engaging in an independently established business. (Dynamex, supra, 4 Cal.5th at p. 962 [“[t]he fact that a company has not prohibited or prevented a worker from engaging in such a business is not sufficient”].) Instead, the inquiry is whether Garcia 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 services of the independent business to the public or to a number of potential customers, and the like.” 

 * * * *

Under the more stringent part C framework adopted by the California Supreme Court in Dynamex, the result is obvious. Dynamex requires more than mere capability to engage in an independent business. Defendants presented no evidence in their moving papers that Garcia in fact provided services for other entities “independently” of his relationship with BTG. Defendants do not suggest otherwise; they simply rely on the Sebago formulation and suggest Garcia was “free to offer his services as an entrepreneur to anyone he chose.” 

So, because Border failed factor “C” of the ABC test, the court of appeal held summary judgment was inappropriate on the wage-order-based claims. 

The court then turned to the non-Wage Order claims.  The court held that the Borello test applied to whether Garcia was an independent contractor or employee.  The court affirmed the trail court’s decision that Garcia was a contractor, but only because Garcia waived his appeal of this issue.  So, the case stands for the proposition that Dynamex does not apply to non-Wage Order claims.  But the decision cannot be used as authority for the proposition that Border’s cab drivers are contractors under Borello. 

Unfortunately, employers must apply a variety of analyses to determine if employees are properly classified.  But to fail the ABC test is to expose the business to significant liability, even if the Borello factors are satisfied. So, employers should apply the ABC test first.  If the relationship fails that test, employers should carefully consider whether it is appropriate to classify workers as contractors for purposes other than the Wage Order.  After all, providing contractors with meals and breaks, minimum wage, overtime, and other benefits of the Wage Order can undermine a claim of independent contractor status under other laws. 

P.S. – what’s the Borello test?  From the Garcia opinion, here you go – 

” ‘[t]he principal test of an employment relationship is whether the person to whom the service is rendered has the right to control the manner and means of accomplishing the result desired. . . .’ ” (Borello, supra, 48 Cal.3d at p. 350.) The right to discharge at will without cause is strong evidence of an employment relationship. (Ibid.) 

But apart from “control,” Borello also identified several ” ‘secondary indicia’ ” that bear on employment status, principally drawn from the Restatement Second of Agency. (Borello, supra, 48 Cal.3d at pp. 350–351.) These include: 

“(a) whether the one performing services is engaged in a distinct occupation or business; (b) 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; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.” (Id. at p. 351.) 


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