Fallout from the Dynamex Operations Decision and Independent Contractor Classification

by G. Spencer Mynko, Esq.

Unanswered Questions of the Dynamex Operations Decision

Are independent contractor truck drivers driving under a motor carrier’s authority a thing of the past in California? Unfortunately – at least for the time being – the answer seems to be yes.

In case you have just come out of hibernation, I will briefly summarize what happened April 30, 2018 when California became the most hostile jurisdiction in the nation for independent contractor status. In a unanimous ruling, the California Supreme Court in Dynamex Operations West v. Superior Court rejected the decades-old Borello test for determining whether workers should be classified as employees or independent contractors, in favor of a new standard that heavily favors workers being classified as employees under the California Wage Orders. The Court adopted a broad “ABC Test,” which makes it dramatically more difficult – if not impossible – to classify workers as independent contractors. The California Supreme Court seems to have made motor carrier’s use of independent contractor truck drivers impossible.

The California Supreme Court issued a landmark decision in Dynamex Operations West v. Superior Court, No. S222732, in which the Court chose to essentially scrap the nearly 30-year old test for determining whether a worker is an employee or an independent contractor for claims asserted under California’s Wage Orders. This led me to conclude that trucking companies that were in compliance with the law before April 30, are probably acting illegally today. The ruling in Dynamex is so broad and sweeping, that if you are a motor carrier and you have hired a truck driver, that truck driver is your employee. Period. No exceptions.

The ABC Test:

“The ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (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 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 that involved in the work performed.”

Nonetheless, this left us with unanswered questions about the implications of the decision.

Does Dynamex Only Apply to Wage and Hour matters?:

According to the court, this new test was only applied to classification as an employee for purposes of the Wage Orders. However, the Wage Orders set standards for employment, including minimum wage, overtime, meal and rest breaks, exempt status, record-keeping requirements and basic working conditions. Accordingly, this new test will apply to a number of employment claims, including minimum wage, overtime and meal and rest breaks. Indeed, Plaintiffs’ lawyers who practice Employment Law have wasted no time citing Dynamex in their complaints. However, the court did leave open the possibility that the ABC test could be applied in other circumstances.

Based on the Court’s decision, there is no indication that it changed the tests to determine employee status under other employment statutes related to taxes, unemployment benefits, entitlement to benefits, including workers’ compensation insurance, or other state and federal laws relating to wages, hours and working conditions. It seems for now, the common law employment test or the Borello test – which are arguably more favorable for employers – would still apply to most claims brought under those other statutes.

This means that a driver could be an independent contractor with respect to some laws, but an employee with respect to other laws. However, from a practical perspective, if there is a determination the worker should be an employee under the Wage Orders “ABC Test,” the worker will likely be treated as an employee for all purposes. Furthermore, it is not clear how a motor carrier would treat a driver as an employee for some purposes and not for others: How does an carrier pay someone who is both a contractor and an employee? Who withholds and pays taxes? Would benefits be provided? You can see how confusing this can get.

Another issue is whether the Dynamex decision applies to other California labor laws. The plaintiffs in the Dynamex case also brought claims for expense reimbursement under the California Labor Code. However, the court stated in footnote 5 of the opinion that it was not deciding whether expenses would be reimbursable. This leaves open the question as to whether the ABC test applies to expense reimbursement claims, or whether the courts will have to specifically address that issue in later decisions. Another issue is whether the ABC test applies to claims brought under the California Private Attorney General Act (PAGA)

Does Jurisdiction extend to the California EDD and California Worker’s Compensation Appeals Board?

A big question is whether the California Employment Development Department (EDD) will continue to apply their current test to determine whether someone is an independent contractor, or will they apply the Dynamex ABC test. Similarly, will the California Worker’s Compensation appeals Board continue to rely on the Borello test (as discussed in my prior article), or will the Workers’ Compensation courts follow the Dynamex ABC test? Stand by for this as more shall certainly be revealed.

Will Dynamex apply retroactively?

Another big question is whether Dynamex will be applied retroactively, or only prospectively. Personally, I think the retroactive application of Dynamex would be incredibly unfair and violate the due process of employers who have relied on the Borello test as the law in California. Again, my strong opinion is that Dynamex and the ABC test should only be applied prospectively, because of the incredible unfairness to employers who relied upon Borello for many years.

Nonetheless, I’m sure this will end up being litigated, as I have already seen complaints filed by plaintiffs’ attorneys against trucking companies applying the Dynamex ABC test to conduct that predates the April 30, 2018 decision. This will undoubtedly be extensively litigated.

WSTA Executive Committee Approves Legal Response To CA Supreme Court Ruling

The Western States Trucking Association plans to challenge the California Supreme Court ruling that it says will effectively end the use of trucking owner-operators in the state. “As a result of the recent CA Supreme Court ruling that established a new test to determine whether someone is an independent contractor (owner-operator), many members have been inquiring what action the association would take. Most legal analysis of the ruling agrees the ABC test sets an impossible standard for most of our members to meet. On Wednesday night (5/23) the WSTA executive committee voted to approve allowing association legal counsel to pursue a legal strategy and protect the ability of owner-operators to be a viable choice for the trucking industry. Very shortly we will be making a further announcement.” Western States Trucking Association Transportation News May 29, 2018.

Will the Federal Government take control and take on the states in trucking jurisdiction matters?

Dynamex ushers in new challenges to independent contractor classifications, and will most likely generate class or PAGA actions, with significant exposure for damages and penalties. Notably, independent contractors do not sign class arbitration waivers, meaning that even those employers who have protected themselves from class actions through these waivers may be left unprotected.

Therefore, Federal intervention may be necessary for the use of Owner-Operators who contract with so-called “Non-asset based” motor carriers continue to operate in California.