The California Labor Commissioner’s counsel has issued an opinion letter, expanding the reach of California Supreme Court’s ruling in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. You can find the opinion letter here. If you need a refresher on what Dynamex was about, you can read our article here. In essence, the California Supreme Court in Dynamex held that the “ABC” test for independent contractor status would apply to claims based on the California Industrial Commission Wage Orders. The ABC test affects many independent contractor relationships, and will result in many claims of mis-classification. Here it is:
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
What makes the ABC test particularly grueling is that the employer has the burden of proving all three elements.
The Supreme Court also held that this ABC test is applicable only to claims arising under the California Wage Orders, because the Wage Orders contain a special and broad definition of “employ.” Wage Orders cover certain topics, like overtime, minimum wage, and meal and rest periods. But they don’t cover other issues, such as, say, penalties for late payment of wages, timing of wage payment, sick pay, vacation, etc. The Court in Dynamex acknowledged that different independent contractor standards could apply to different claims. Not surprisingly, then, since the Dynamex decision, lower courts have grappled with what standard to apply when claims involve matters not addressed in the wage orders.
Enter the DLSE and its opinion letter linked above. The DLSE has opined that claims for “waiting time” penalties under Labor Code section 203 are included within the types of claims for which the ABC test will apply. For example, a person claiming mis-classification as an independent contractor can go to the DLSE, file a claim, and ask for waiting time penalties because the person does not qualify as a contractor under the ABC test. And plaintiff attorneys may try to rely on this opinion letter to bring lawsuits on behalf of allegedly mis-classified contractors. The problem? Waiting time penalties have nothing to do with what is in the Wage Orders. The DLSE’s rationale is that waiting time penalties are for wages not timely paid upon termination of employment, and the Wage Orders cover “wages.”
where 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.
The DLSE also decided that claims for expense reimbursement under Labor Code section 2802 are subject to the ABC test, if the type of expense is covered in the Wage Orders (like tools and equipment or uniforms.) Other types of expense reimbursement claims (e.g., mileage reimbursement) may be subject to a different test for independent contractor status, such as the common law “Borello” test that focuses on control. One can see that application of the ABC test for one type of expense claim, and a different standard for other types of expense claims, may lead to strange and conflicting results.
Again, the DLSE’s opinion letters are important to consider, but not binding. Future cases may uphold the DLSE’s view or not. But the availability of waiting time penalties, and expense reimbursement, under the ABC test is another reason for employers to take a very hard look at who qualifies as an independent contractor.