Wednesday, May 2, 2018

Dynamex Checks a Gig Line: California Supremes Respond to Intensifying Employee Misclassification

There are two things that workers’ compensation professionals should know right off the bat about the California Supreme Court’s magisterial opinion in Dynamex Operations West v. Lee. First, although the case addresses the never-dying question of whether an independent contractor is in reality an employee, it does not apply to California workers’ compensation cases, which, under Borello (see infra.), utilize a different employee definition than those under consideration in Dynamex. Indeed, the purpose of Dynamex is to make the finding of employee status easier than under Borello. Second, the case does not technically even apply to all of California wage and hour law, let alone to all California employment law. The facts are simple: a driver (and similarly situated drivers) claimed to be employees who were deprived of various statutory rights. A delivery company that utilizes their services says the workers are independent contractors. That is all you really need to know. Dynamex ultimately holds that

[W]e conclude that in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC” test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors. Under this test, 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

Dynamex, a case not explicitly about the Gig economy (it actually involved delivery drivers) but with Gig economy implications, is just over 80 pages long. But the case’s length does not derive from inherently difficult concepts. Whenever one is confronted with a fact-intensive, class-action issue (which is really what the case is about), coupled with infamously fact-intensive, employee-status disputes (where factors must be discussed even when a court eventually dismisses their applicability), one is likely in for a long ride. At the end of the day, however, Dynamex reveals: a jurisdiction can a) make it analytically very easy to classify a putative employee as an independent contractor; b) make it very difficult to do so; or c) opt for something in the middle. Recent Gig laws occupy position a); traditional Restatement-like and Economic Realities factor tests occupy position c); and simplified “ABC” and what I’ll now call the modified ABC/Dynamex test occupy position b).



To put things as essentially as possible (in the interests of space), Dynamex involved two competing employee definitions (or one explicit employee definition and one employee definition created by implication) sitting side-by-side under California law. One definition, used in connection with “wage orders,”—the definition by implication (I’ll get to that in a minute)—is very expansive, and because of that expansiveness is less analytically dense, and thus more amenable to “commonality” and class action suit. The complaining drivers will not only gain class action status under this standard, they will likely prevail on the merits.  The explicit definition, the Borello standard, follows what I consider a California-delimited Restatement 2nd of Agency approach, with a bit more emphasis being given to the “control” test, but also with more deference paid to the social purpose of the underlying remedial statute involving “employees.” However described, the second standard is more fact-sensitive, and thus less amenable to class action certification because of the variability (and thus absence of commonality) of issues that can arise from putative employee to putative employee. The drivers could win or lose under this standard, but the question is close enough that class action status could be denied and, as a result, lawyers will not in the future take on such cases.

But whence this duality of standards? Much of California employment law is governed by “wage orders,” described by the Dynamex court as “constitutionally-authorized, quasi-legislative regulations that have the force of law.” There is a wage order that applied specifically to the transportation industry workers involved in this case. The transportation wage order does not explicitly define “employee” but alludes to the definition recursively, and implicitly, through a series of other definitions:

(D) ‘Employ’ means to engage, suffer, or permit to work.

(E) ‘Employee’ means any person employed by an employer.

(F) ‘Employer’ means any person as defined in . . . the Labor Code, who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.

Thus, “employee” is defined in terms of what it means for an employer to employ, “to engage, suffer, or permit to work.” The court recounted statutory historical evidence that this phraseology was one of art, and was meant to sweep up employment relationships that would not have been recognized as such by the common law. Yet, as the employer argued, syntactically the orders are directed to those who are bound by them, and do not immediately address the distinction between employees and independent contractors. It was only in a later case, Martinez (2010), when the California courts firmly asserted that the wage orders related directly to the “employment relationship.” It is evident that if an employee is anyone an employer “engages, suffers, or permits to work” in its business, many more individuals would be covered by a “wage order” than would be designated employees under a factor analysis pursuant to the Borello standard. It is hard to deny that the employer’s argument that such a definition could potentially sweep traditional independent contractors within its ambit possesses force. Ultimately, the Court has no rejoinder but to assert the primacy of certain social welfare objectives over other values.  

The cog in this wheel, however, is the legal creature known as a wage order, a regulation created by an agency called the Industrial Welfare Commission (IWC), which the court curiously informs us, in footnote 14 of Dynamex, was defunded by the California legislature in 2004, but whose wage orders retain the force of law. Had it not been for these orders there would be no occasion to depart so decisively from the Borello standard. The IWC was initially established in 1913. For the first 60 years of its existence, the IWC's mission was to regulate the wages, hours and conditions of employment of women and children employed in California in furtherance of such employees' “health and welfare.” To this end, the commission - beginning in 1916 - promulgated a series of industry-and occupation-wide “wage orders,” prescribing various minimum requirements with respect to wages, hours and working conditions to protect the health and welfare of women and child laborers. Industrial Welfare Com. v. Superior Court, 613 P.2d 579 (Cal. 1980). It is the amped-up social mission of this very old agency, established in the era of progressives (and, as it happens, during the era of the first workers’ compensation statutes), that seems to have—at least temporarily—imposed itself from the past to eclipse in certain industries an often-exclusionary factor test.

I cannot do Dynamex justice—it must be read closely and in its entirety—but I conclude with two thoughts. First, this is a weird way—and an unsettlingly indirect way—to expand the scope of employee-coverage: it will only “work” if people still believe in the social policy reflected in the wage orders, which I fear is an open question. Second, whatever one thinks about the wisdom of the expansive coverage policy Dynamex ratifies, the disunity in the national approach to employee coverage by various benefits statutes has become startling. 

Michael C. Duff

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