California Supreme Court’s Independent Contractor Ruling Only Applies to Claims Brought Under California Wage Orders

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Recently, in Garcia v. Border Transportation Group, LLC, the California Court of Appeals weighed in on the scope of the California Supreme Court’s April 2018 ruling in Dynamex Operations West, Inc. v. Superior Court.  In Dynamex, the Supreme Court adopted a new standard for determining whether a California worker is an employee or independent contractor under the California Industrial Welfare Commission’s (“IWC”) wage orders.  This new standard, called the “ABC test” holds that a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (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 for the hiring entity.

In Garcia, the Court of Appeals interpreted Dynamex, holding that the Supreme Court’s ruling in that case only applies to claims brought pursuant to the IWC wage orders (e.g. unpaid wages, failure to pay minimum wage, and violations for missed meal breaks, rest breaks, and inaccurate wage statements), not to any other claims.  The Garcia Court said it was “logical” to apply the ABC Test to wage orders because they define “employment” broadly and “regulate very basic working conditions” for workers, suggesting California courts should err on the side of extending employment protections.  However, the Court said this was not the case for the labor statutes on which the plaintiff based his other claims.  It stated that “[t]here is no reason to apply the ABC test categorically to every working relationship…Although both parties suggest Dynamex has some application to [plaintiff’s] case, neither identifies a basis to apply Dynamex to non-wage-order claims.”

Thus, the Court noted that, with respect to non-wage order claims (e.g. overtime, wrongful termination in violation of public policy, waiting time penalties), courts should continue to rely on the more flexible standard of what constitutes an employee versus independent contractor set forth by the California Supreme Court in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) (Borello).

The Court of Appeals’ ruling in Garcia provides helpful insights as to scope and application of Dynamex to California employers, who need to closely examine whether their existing independent contractor classifications conform to the new and more rigorous California standards.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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