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CA Supreme Court denies petition to rehear Dynamex opinion

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Yesterday, the California Supreme Court denied the petition for rehearing filed by Dynamex on the issue of whether the Court’s April 30, 2018 decision in Dynamex Operations West Inc. v. Superior Court should apply retroactively or only prospectively. In other words, according to Scopelitis, the Court declined to provide guidance on whether its adoption of the ABC test as a means of determining whether workers are employees or independent contractors under some California wage and hour laws applies to pending cases or only those filed after the opinion was issued.

In a number of cases, the plaintiffs have been quick to advocate for the application of the ABC test on a retroactive basis. For example, just days after the Court issued the Dynamex opinion, the plaintiffs in Lawson v. GrubHub, the latter of whom recently lost their bid for reclassification as employees under the Borello test, asked the Ninth Circuit Court of Appeals to remand their case to the trial court for reconsideration of their status as employees under the newly applied “ABC test.” The ABC test for establishing whether one is an employee is far more rigid than the multi-factor standard (Borello) that had been in place for almost thirty years. 

The Court’s denial of the petition for rehearing essentially renders the Dynamex opinion final as of June 20, 2018, according to the firm. Transportation industry advocates are now making the exploration of a legislative response a priority, as previously mentioned when FreightWaves first covered the story

In addition, Greg Feary and the Owner-Operator Practice, along with Jim Hanson and the Class Action Practice at Scopelitis, including several of the firm’s California-licensed attorneys, have been developing guidance to address the Dynamex opinion, both at the operational level and in connection with pending cases. On the operational side, the Dynamex opinion may result in adoption of the settlement-carrier model on a wider scale as a means to further highlight the entrepreneurial independence of contractors.

There has been much speculation as to the fallout from the ruling. What does it mean for startups in the “gig economy,” including, but not limited to, gigantic players such as Uber and Lyft? What does it mean for franchises and their relationship with franchisees? And of course what does it mean for hundreds of thousands of owner-operators in the transportation space? While many resist speculation and analysis, FreightWaves did discover a useful interpretation from Judicata, which reads as follows:

The federal courts, in applying the suffer or permit to work standard set forth in the FLSA, have recognized that the standard was intended to be broader and more inclusive than the preexisting common law test for distinguishing employees from independent contractors, but at the same time does not purport to render every individual worker an employee rather than an independent contractor…the federal courts have developed what is generally described as the “economic reality” test for determining whether a worker should be considered an employee or independent contractor for the purposes of the FLSA—namely, whether as a matter of economic reality, the worker is economically dependent upon and makes a living in another’s business (in which case he or she is considered to be a covered employee), or, instead is in business for himself or herself (and may properly be considered an independent contractor).

In other words, according to this interpretation, while some adjustments may be on the horizon, the ruling does not mean the end of the transportation world as we know it.

Greg Feary of Scopelitis was not available for immediate comment. Avery Wise of FTR says the decision not to rehear is “a pretty routine and expected development.”

For more background, the case involves drivers for Dynamex, a nationwide package and document delivery company, which allegedly misclassified its drivers as independent contractors rather than as employees. Two drivers filed a complaint against the company accusing Dynamex of violating California’s Industrial Welfare Commission Wage Order Number 9, which regulates wage and hour issues in the transportation industry, and state labor laws.

In a lengthy opinion, the court addressed the history of judicial efforts to distinguish between an employer-employee relationship and that of an independent contractor and noted that the origins of that question arose from whether a purported employer should be liable for the actions of an individual acting on its behalf. It further noted, “the question whether the hirer controlled the details of the worker’s activities became the primary common law standard for determining whether a worker was considered to be an employee or an independent contractor.”

The court rejected the Borello test and replaced it with the “ABC test” that several states have adopted. The court’s new formula requires that an employer satisfy all three of the following conditions in order prove an individual is not an employee:

(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;

(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.

The court noted that in many states a common element of the ABC test “provide[s] that a hiring entity may satisfy part B by establishing either (1) that the work provided is outside the usual course of the business for which the work is performed, or (2) that the work performed is outside all the places of business of the hiring entity.” 

However, the court deliberately removed the latter element from part B of its new standard, which will make it difficult to classify an individual as an independent contractor unless that person has essentially no connection to the employer’s business. In other words, for now employers in California that rely on independent contractors are under pressure, not knowing how to fully interpret the California supreme court ruling that may have put their business model in jeopardy.

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Chad Prevost

Chad is radio host and broadcast media specialist for FreightWaves.

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