Wrongfully classifying employees as independent contractors just got a lot riskier in California. Earlier this month, the California Supreme Court issued its decision in Dynamex Operations West, Inc., v. Superior Court, adopting a broad view of workers deemed "employees" as opposed to "independent contractors" for purposes of claims alleging violations of California's Wage Orders, established to regulate wages, hours and working conditions for California employees.
In Dynamex, delivery drivers Charles Lee and Pedro Chevez sued Dynamex Operations for unlawfully classifying them and 1,800 other drivers as independent contractors. The case ultimately reached the California Supreme Court. The Court here defined the issue on appeal as whether, in a misclassification case, a class may be certified based on the expansive definition of employee as outlined in the Wage Order language construed in Martinez v. Combs or based on the common law test for employment set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. In other words, the Court focused on whether to continue using the Borello test.
The Wage Order definition of employment is broader than the common law definition. The Wage Orders define "employ" broadly to mean "to engage, suffer or permit to work." In contrast, Borello focuses instead on a multi-factor balancing test that depends on each situation's unique facts, a test that more readily recognizes the existence of an independent contractor relationship.
What does all this mean? In short, the California Supreme Court in Dynamex held that "engage, suffer, or permit to work" determines employee status for Wage Order Claims, requiring a defendant disputing employee status to prove all three of the following elements:
1. The worker is free from the hirer's control and direction in connection with performing the work, both under contract and in fact;
2. The worker performs work that is outside the usual course of the hirer's business; and
3. 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.
If the defendant cannot prove all of the elements above, the worker will be presumed to be an employee. Misclassification may lead to claims of unpaid taxes, interest and various penalties against the employer.