California dreaming: what’s up with the state’s high court ruling?

  (Photo: Shutterstock)

(Photo: Shutterstock)

California’s never been one of the friendlier states to conduct business in. Whether it’s strict emissions standards, or interference on human resources and employee standards, the red tape gets in the way of business growth. Their historic precedent notwithstanding, recent events in the state indicate an aggressive push against employers of the trucking industry in particular.

The state has already seen a litany of lawsuits slapped on trucking companies alleging labor abuses against truck drivers who haul their goods, especially in the port drayage sector. Recently, a class action lawsuit was filed against XPO Logistics on the issue of misclassification of drayage drivers as independent contractors and not as regular employees.

But what about the recent California Supreme Court decision from the top of this week? In the Dynamex Operations West v. Superior Court case, the Dynamex company failed the court’s ABC test. The ABC test is actually a legal precedent from New Jersey, which presumes the worker is an employee.

To rebut the presumption, the employer must prove worker is (A) free from the employer’s control and direction; (B) performs a service that is outside of all the places of business the enterprise for which such service is performed; and (C) customarily engages in an independently established trade, occupation, profession, or business.

The "A" test is whether, according to the decision in the Dynamex case, "the worker (is) free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?" In the decision, the court reviews the requirements that Dynamex workers needed to meet, and they were extensive, even up to the point of wearing Dynamex-branded uniforms.

Part B of the test is whether the worker "perform(s) work that is outside the usual course of the hiring entity's business." In the case of Dynamex, this is the most straightforward “prong” of the test that the company fails to meet. The company is a delivery company, and the workers who were re-classified as contractors did delivery work. "Unlike other types of business in which the delivery of a product may or may not be viewed as within the usual course of the hiring company's business, here the hiring entity is a delivery company,” the court said in its 86-page decision.

Part C asks "Is the worker customarily engaged in an independently established trade, occupation of business of the same nature as the work performed for the hiring entity?" "Such an individual generally takes the usual steps to establish and promote his or her independent business, for example, though incorporation, licensure...," the decision said.

"When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor by the unilateral action of a hiring entity, there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification." In the case of Dynamex, the company had taken its existing drivers and reclassified them as contractors.

The decision also holds that the Dynamex contractors were employees under the C portion of the test. The court’s discussion of where Dynamex stands under part A is less definitive, but that really doesn't matter, as it clearly doesn’t pass B in the first place. "The hiring entity's failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an included employee, rather than an excluded independent contractor, for purposes of the wage order," the court decision said.

Gregory M. Feary of Scopelitis Transportation Law tells FreightWaves, “Typically, delivery companies would not even pass the B-prong. Those type of delivery drivers, would in fact be employees.”

“The court didn’t even spend that much time on whether the drivers are independent businesses,” says Feary, “but they didn’t need to do that,” he adds. “All they had to do was look at the one aspect that Dynamex couldn’t pass.”

So how does the “fact pattern” now impact larger carriers, such as CDL drivers for heavy trucking and situations in which drivers own their own business equipment? “We just don’t know whether the court is going to find those types of drivers essentially the same as the Dynamex type of drivers,” says Feary.

“The court is certainly hinting that it would. When the putative employer is the same as the putative employee. In other words, since they’re both in the same enterprise, the court is certainly strongly suggesting that it won’t pass the B-prong either.”

However, Feary repeats, “I think it’s really hard to forecast.”

“Of the 86-page decision there’s only 3-4 pages using the fact-patterns in transportation,” he says. “Wage Order 9, I think you can fairly say that it would be fairly difficult for any courier operator to prove in a California court that their delivery drivers are independent contractors.”

But behind the courier industry or light delivery vehicle (vehicles of 10,000 pounds or less), vehicles with specialized driving equipment, it remains hard to ascertain. The next steps will revolve around how the plaintiffs respond. Legislative responses are also possible, but in the short-to-medium term, is the state effectively inviting more class-action lawsuits?

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