“The ease with which the court affirmed class certification underscores the significance of the Dynamex decision,” concludes Robert J. Herrington, Los Angeles, CA, cochair of the Emerging Issues Subcommittee of the Section of Litigation’s Class Actions & Derivative Suits Committee. “The court spent just four paragraphs on the class certification issue, and although the court found that the trial court’s view of the ‘suffer or permit work’ standard was too broad, the court still concluded” that class certification was proper, Herrington observes. Indeed, the court quoted dicta to support its affirmation of class certification, noting “when plaintiffs in a class action rely on multiple legal theories, a trial court’s certification of a class is not an abuse of discretion if certification is proper under any of the theories.”
Evolution of the Common-Law “Control of the Details” Standard
The Dynamex court also explained the rationale animating the existing standards used to determine whether a worker is an employee or independent contractor. Citing dictum in NLRB v. Hearst Publications, a U.S. Supreme Court precedent, the Dynamex court traced the difficulty in distinguishing employees from independent contractors to the common law. At common law, the problem of classifying a worker as an employee or independent contractor arose in the tort context, to determine whether an employer would be vicariously liable for its worker’s conduct.
Critical to the common-law determination of an employer’s derivative liability was the “control of the details” test, where an employer’s right to “supervise and control the details of the worker’s actions” meant it could be found liable for injury caused another by its worker, the Dynamex court noted. This test gained traction among courts as the primary standard for ascertaining the existence of an employment relationship between a worker and an employer.
Amplifying the “control of the details” standard beyond its original tort context, the court decided Borello, which set forth a multifactor test to determine whether a worker was an employee or an independent contractor. Borello addressed whether farmworkers hired by a grower to harvest cucumbers under a “sharefarmer” agreement were independent contractors or employees for purposes of California’s workers' compensation statutes. Emphasizing the “remedial purpose” underlying the workers' compensation statutes, the Borello court concluded that the concept of employment is not “inherently limited by common law principles.”
Accordingly, the Borello court held that the “control of the details” standard should be considered in tandem with five disjunctive factors to determine whether a worker is an independent contractor or employee. Those five factors are (1) the worker’s opportunity for profit or loss; (2) the worker’s investment in equipment or material for the commissioned task; (3) whether the service rendered by the worker requires special skills; (4) the degree of permanence of the working relationship; and (5) whether the worker’s offered services are an integral part of the employer’s business. No single Borello factor is dispositive and all factors have equal weight. After weighing those factors, the Borello court concluded that the farmworkers were employees and not independent contractors.
The Dynamex court further observed that federal courts likewise used substantially similar criteria to the Borello factors in construing the existence of an employment relationship. For example, it noted that federal courts interpreting the meaning of the term “employee” in federal statutes often rely heavily on the “control of the details” standard as part of their multifactor analysis, citing the U.S. Supreme Court’s decision in Nationwide Mutual Insurance Company v. Darden.
The California Supreme Court also pointed to the parallels between the Borello standard and the “economic reality” test used by federal courts to interpret the “suffer or permit to work” definition of “to employ” under the Fair Labor Standards Act (FLSA). The “economic reality” standard considers the five Borello factors, and to the extent a worker—as a matter of economic reality—is dependent on the employer and the employer “exercises control” over the worker, then the worker would be considered an employee.
Court Adopts New “ABC Standard”
Because the legislative history of the FLSA suggested that the drafters wanted the “broadest definition” of the “suffer or permit to work” definition of “to employ” to permit coverage for all workers under the FLSA, the Dynamex court concluded that a broad definition of the “suffer or permit to work” standard should also apply California wage and hour orders consistent with the remedial purposes underlying such orders.
To effectuate that broad reading, the Dynamex court fashioned a new, “ABC standard” to provide a “simple and clear” test. Significantly, the ABC standard presumes that a worker is an employee and places the burden on employers to disprove that a worker is an employee. Under the ABC standard, a worker is an employee—and not an independent contractor—unless the employer establishes the following three, conjunctive factors: (1) “that the worker is free from control and direction over performance of the work, both under the contract and in fact”; (2) that the service for which the worker is commissioned is “outside the usual course of the business for which the work is performed”; and (3) that the worker is “customarily engaged in an independently established” occupation. According to the Dynamex court, unlike the ambiguous “control of the details” standard, or the unpredictable multifactor analysis required under the Borello and “economic reality” tests, the ABC standard provides clarity and predictability.