Five key issues California employers

must know about Supreme Court’s

ruling on independent contractors
By Anthony Zaller on May 4, 2018
POSTED IN BEST PRACTICES FOR CALIFORNIA EMPLOYERS, HIRING, INDEPENDENT
CONTRACTOR, WAGE & HOUR LAW
The California Supreme Court issued a monumental ruling
this week regarding the test used in determining whether
a worker can be classified as an independent contractor. 
In the case, Dynamex Operations West, Inc. v. Superior
Court, the plaintiff brought a class action complaint
alleging five causes of action arising from Dynamex’s
alleged misclassification of employees as independent
contractors: two counts of unfair and unlawful business
practices in violation of Business and Professions Code
section 17200, and three counts of Labor Code violations
based on Dynamex’s failure to pay overtime
compensation, to properly provide itemized wage
statements, and to compensate the drivers for business
expenses. Here are five key issues California employers
must understand about the ruling:

1. The determination of whether a worker is an

independent contractor or an employee is inherently
difficult.

The determination of whether an employee is an

independent contractor or employee has been a difficult
issue that does not provide a bight line in many cases. 
The California Supreme Court recognized this
in Dynamex, stating:
As the United States Supreme Court
observed in Board v. Hearst
Publications(1944) 322 U.S. 111, 121:  “Few
problems in the law have given greater
variety of application and conflict in results
than the cases arising in the borderland
between what is clearly an employer-
employee relationship and what is clearly
one of independent, entrepreneurial
dealing.  This is true within the limited field
of determining vicarious liability in tort.  It
becomes more so when the field is
expanded to include all of the possible
applications of the distinction.”
2. The ABC Test: Part A: Is the worker free from the
control and direction of the hiring entity in the
performance of the work, both under the contract for the
performance of the work and in fact?

In making the determination of whether a worker is

properly considered the type of independent contractor
for which the wage order does not apply, the California
Supreme Court adopted the “ABC” test.  This test is used
in other jurisdictions in a variety of contexts to
distinguish employees from independent contractors.

To illustrate the first part of the ABC test, the Part A

control test, the Court provided the following examples: 
In Western Ports v. Employment Sec. Dept. the company
“failed to establish that truck driver was free from its
control within the meaning of part A of the ABC test,
where the company required driver to keep truck clean, to
obtain the company’s permission before transporting
passengers, to go to the company’s dispatch center to
obtain assignments not scheduled in advance, and could
terminate driver’s services for tardiness, failure to
contact the dispatch unit, or any violation of the
company’s written policy.”  Alternatively, in Great N.
Constr., Inc. v. Dept. of Labor  a construction company
“established that worker who specialized in historic
reconstruction was sufficiently free of the company’s
control to satisfy part A of the ABC test, where worker set
his own schedule, worked without supervision, purchased
all materials he used on his own business credit card, and
had declined an offer of employment proffered by the
company because he wanted control over his own
activities.”

3. Part B: Does the worker perform work that is outside

the usual course of the hiring entity’s business?

To illustrate the point, the Court provided the following

analysis:

Workers whose roles are most clearly

comparable to those of employees include
individuals whose services are provided
within the usual course of the business of
the entity for which the work is performed
and thus who would ordinarily be viewed by
others as working in the hiring entity’s
business and not as working, instead, in the
worker’s own independent business.
The Court set forth a few examples: When a retail store
hires an outside plumber to repair a leak in a bathroom on
its premises or hires an outside electrician to install a
new electrical line, the services of the plumber or
electrician are not part of the store’s usual course of
business and the store would not reasonably be seen as
having suffered or permitted the plumber or electrician to
provide services to it as an employee.

Alternatively, when a clothing manufacturing company

hires work-at-home seamstresses to make dresses from
cloth and patterns supplied by the company that will then
be sold by the company, or when a bakery hires cake
decorators to work on a regular basis on its custom-
designed cakes, the workers are part of the hiring entity’s
usual business operation it would be reasonable to view
these workers as employees.

4. Part C: Is the worker customarily engaged in an

independently established trade, occupation, or business
of the same nature as the work performed for the hiring
entity?

The Court held that the term “independent contractor,”

“ordinarily has been understood to refer to an individual
who independently has made the decision to go into
business for himself or herself.”  (See, e.g., Borello,
supra, 48 Cal.3d at p. 354 [describing independent
contractor as a worker who “has independently chosen
the burdens and benefits of self-employment”].)  Such an
individual generally takes the usual steps to establish and
promote his or her independent business….”  Evidence of
this will be the workers’ own business incorporation,
licensure, advertisements, offering to provide services to
the general public or other potential customers. 
Alternatively, a worker is not engaged in an independent
established trade usually if the hiring company
unilaterally designates the worker as an independent
contractor.  In addition, “[t]he fact that a company has
not prohibited or prevented a worker from engaging in
such a business is not sufficient to establish that the
worker has independently made the decision to go into
business for himself or herself.”

The hiring entity’s failure to prove any one of these three

parts of the ABC test will be result in a finding that the
worker is an employee and not an independent contractor
for purposes of the California wage orders.

5. Employers bear the burden of proof in establishing

workers are independent contractors.

Employers had the burden prior to the California Supreme

Court’s ruling in Dynamex, but the court reinforced that
the employer bears the burden of proof when establishing
a worker as an independent contractor.  Employers must
be careful in making the determination that workers are
independent contractors, as there are many wage and
hour penalties for unpaid wages, unpaid overtime, and
missed meal and rest breaks, in addition to the large civil
penalties under Labor Code section 226.8, which is a
fairly recent law which added penalties from $5,000 up to
$25,000 for each violation.