A new decision, Garcia v. Border Transportation Group, LLC, analyzes the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, which changed the test for independent contractors under California law.  In Border Transportation, Plaintiff Jesus Cuitalhuac Garcia filed the case against Border Transportation Group, LLC and its owners for wage and hour violations stemming from his classification as an independent contractor.  The trial court agreed with the company’s classification as an independent contractor in granting Border Transportation’s motion for summary judgment.  Plaintiff appealed the ruling granting the motion for summary judgment, and while the appeal was pending, the California Supreme Court issued Dynamex Operations West, Inc. v. Superior Court.

The appellate court, in Garcia v. Border Transportation Group, LLC, held that summary adjudication should not have been granted as to the wage order claims, but was proper as to the non-wage-order claims.  Here are five key take-aways from the Border Transportation decision:

1. Borello factors for distinguishing “employees” from “independent contractors”

Border Transportation filed a motion for summary judgment before the trial court arguing that it did not exercise control over Garcia, who was a taxi driver for the company.  The company also argued that Garcia’s supervisor’s role was limited to collecting payments from plaintiff and other drivers, and never reprimand plaintiff during his employment.

The court set out that the California Supreme Court in Borello “defined a general approach to determine whether a worker is an employee or an independent contractor.”  In Borello, the court explained that the “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.”  The right to discharge the worker at will, without cause, is strong evidence of an employment relationship.

In addition to the “control” over the workers, Borello also set forth other factors (“secondary indicia”) to review in determining worker’s employment status:

(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.

Borello also makes it clear that the classification used by the parties can be considered, but it is not determinative of how the employee should be classified.

2. “Suffer or permit to work” definition of employment

In Martinez v. Combs, the California Supreme Court reviewed the definitions of “employ” under the IWC Wage Orders and held that there were three alternative definitions of employ.  The broadest definition of employ is to “suffer or permit to work.”  Generally, the court explained that employers who know people are working and not being paid for the work or by not preventing unpaid work from occurring, “clearly suffers or permits that work” and is liable for the wages for these workers.

The court set forth that “the Supreme Court [in Dynamex] explained, the trial court properly applied the ‘suffer or permit to work’ definition of employment in Martinez, instead of the ‘control’ test in Borello, to evaluate class certification for wage order claims.”  However, the Dynamex decision did not address “what standard applies to non-wage-order claims.”

Under the ABC test set forth in Dynamex, a worker is presumed to be an employee, unless the hiring entity establishes each of the following:

(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. (Dynamex, supra, 4 Cal.5th at p. 957.)

3. Wage orders issued by the Industrial Welfare Commission (IWC) set forth requirements for employers that are distinct from the Labor Code.

As the court explained, the IWC developed “constitutionally authorized, quasi-legislative regulations” that “impose obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees” in various industries.  Employers are required to comply with the requirements set forth in the wage order that applies to their industry (click here for a list of the 17 IWC wage orders).

4.The Dynamex ABC test only applies to wage-order claims, and the Borello test applies to all other claims.

The court in Border Transportation held that “Dynamex applied the ‘suffer or permit to work’ standard contained in the wage order without deciding what standard applied to non-wage-order claims, such as claims for expense reimbursement (such as for fuel or toll road fees) under Labor Code, section 2802.  The court in Border Transportation explained:

[Dynamex] did not reject Borello, which articulated a multifactor test for determining employment status under the Worker’s Compensation Act. Nor did it address the appellate court’s ruling that “insofar as the causes of action in the complaint . . . are not governed by the wage order” and predicated solely on the Labor Code, “the Borello standard is the applicable standard for determining whether a worker is properly considered an employee or an independent contractor.”

The court held that the “suffer or permit to work” and the ABC test was applicable to the wage order claims because the wage orders define “employ” in this language, and the wage orders regulate very basic working conditions and are meant to cover the widest class of workers.

Therefore, the court held that plaintiff’s wage-order claims for unpaid wages, failure to pay minimum wage, failure to provide meal and rest periods, failure to furnish itemized wage statements, and Unfair Competition Law (UCL) are governed by the “suffer or permit to work” standard set forth in Dynamex.  Plaintiff’s remaining claims for overtime (the wage order does not apply to taxicab drivers), wrongful termination and waiting time penalties under Labor Code section 203, are not covered by the wage orders, and therefore are subject to the Borello test.

Therefore, the court found that as to plaintiff’s wage order claims, there is a triable issue of fact as to whether plaintiff was an employee under the ABC test.  The ABC test “presumes a worker hired by an entity is an employee and places the burden on the hirer to establish that the worker is an independent contractor.”

5. Part C of the ABC test under Dynamex requires the company to show an existing independent business operation for independent contractors. 

The court explained that “Dynamex makes clear that the question in part C is not whether [Border Transportation] prohibited or prevented [plaintiff] from engaging in an independently established business.”  Instead, the analysis is if the plaintiff “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.”

Defendant relied upon a 2015 Massachusetts Supreme Court case, Sebago v. Boston Cab Dispatch, Inc., to argue that Boston taxi drivers who leased medallions from owners were “customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.” In rejecting this analogy to the facts in this case, the court held that “Dynamex makes clear that California follows the version of part C that requires an existing, not potential, showing of independent business operation.”  The court held that based on the facts in this case, plaintiff was dependent on the company for his taxi permit, and therefore did not have the ability to independently operate on his own accord.  Indeed, the court noted that defendant “did not establish that [plaintiff] ‘is customarily engaged in an independently established trade, occupation, or business.”