Dynamex, a recent decision from the California Supreme Court, has caused quite a bit of buzz in legal and business circles. Many believe that Dynamex (see link to the case at bottom of this post) will have vast implications for various gig economy companies.

Amazingly, as of early 2018 there appears to have been little if any litigation in the California workers’ comp system  over the issue of whether workers for various gig economy companies are employees or independent contractors for workers’ comp purposes. Those issues have arisen in class actions undertaken against Uber, Lyft, Grubhub and others, however, but the results in those cases are mixed and often seem to involve issues of the validity of arbitration agreements.

A 2018 decision by a U.S. district court magistrate case from the United States District Court Northern District of California in Raef Lawson v. Grubhub (see link at the bottom of this post) found that :

“While some factors weigh in favor of an employment relationship, Grubhub’s lack of all necessary control over Mr. Lawson’s work, including how he performed deliveries and even whether or for how long, along with other factors persuade the Court that the contractor classification was appropriate for Mr. Lawson during his brief tenure with Grubhub.”

The U.S. Magistrate Judge Jacqueline Scott Corley ruled that:

“Under California law whether an individual performing services for another is an employee or an independent contractor is an all-or-nothing proposition. If Mr. Lawson is an employee, he has rights to minimum wage, overtime, expense reimbursement and workers compensation benefits. If he is not, he gets none. With the advent of the gig economy, and the creation of a low wage workforce performing low skill but highly flexible episodic jobs, the legislature may want to address this stark dichotomy. In the meantime the Court must answer the question one way or the other. Based on what the Court observed at trial and the facts found, and after applying theBorello test, the Court finds that during the four months Mr. Lawson performed delivery services for Grubhub he was an independent contractor. Since he was not an employee, he cannot prevail on his individual Labor Code or PAGA claims. Accordingly, judgment must be entered in favor of Grubhub and against Mr. Lawson.”

Mr. Lawson’s claim alleged that he was misclassified as an independent contractor and that Grubhub violated California’s minimum wage, overtime and employee expense reimbursement laws.

The Lawson v. Grubhub decision analyzes the employment versus independent contractor issues within the context of a leading California case, S.G. Borello & Sons v. Department of Industrial Relations (1989) 48 Cal.3d 341. In Borello the California Supreme Court had set forth a multi-factor analytical framework for determining whether a workers is an employee. Years after Borello, the California Supreme Court revisited the Borello test in Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal. 4th 522.

Borello was a case arising in a workers’ comp context, unlike the Grubhub litigation.

But just a couple of months after the federal court Grubhub ruling, the California Supreme Court has issued its decision in Dynamex. Dynamex involves a class action alleging that Dynamex workers are employees, not independent contractors. At issue was whether Dynamex had misclassified workers and was thus liable for violations of various wage and hour laws and regulations.

In a somewhat labored decision (82 pages!), the California Supreme Court adopts an “ABC standard” to distinguish employees from independent contractors. The Dynamex court noted that California wage orders define employ as “suffer or permit to work”. Dynamex was alleged to have violated the Industrial Welfare Commission wage order No. 9 as well as various other Labor Code provisions and to have engaged in unfair and unlawful business practices under B&P Code 17200.

The Supreme Court lumbers along to adoption of the ABC test, which it describes as follows:

“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.”

Since the Dynamex decision was issued , many employer-side lawyers have been advising clients that this is a game changer and that it may require reassessment of business models that assume workers are independent contractors. Dynamex puts the burden on the company to show all three elements of the ABC test. As a result, it is likely that many workers who had allegedly been independent contractors will now be deemed employees for purposes of wage and hour standards enforcement.

What does this mean for California workers’ comp?

It may be a game changer but that is not totally clear. As noted above, in Dynamex the court relied in part on the California wage order terminology of “suffer or permit to work”. Whether this will be imported into the analysis for workers comp purposes is not clear.

One of the issues raised by Dynamex and discussed by the Supreme Court was whether use of the suffer or permit standard in the wage order context could “introduce unnecessary confusion into California law to adopt a standard for wage orders that differs from the Borello standard, which is widely utilized in other contexts for distinguishing between employees and independent contractors.” Essentially, Dynamex argued that if there are two tests (i.e. the ABC test and the Borello test) that there would invariably be “inconsistent determinations for disparate claims under different labor statutes brought by the same individual.”

The Supreme Court did not find this argument sufficiently compelling to dissuade adoption of the ABC test for wage order litigation. Noting that the federal Fair Labor Standards Act has its own standard for determining employee versus independent contractor, the Dynamex court concludes that:

“Moreover, because the Borello standard itself emphasizes the primacy of statutory purpose in resolving the employee or independent contractor question, when different statutory schemes have been enacted for different purposes, it is possible under Borello that a worker may properly be considered an employee with reference to one statute but not another”

So what appears unclear to this observer is whether the WCAB and California costs will go beyond the Borello standard and begin using the ABC standard in analyzing workers comp employment vs. independent contractor issues.

We are in an era when there is great uncertainty among many workers about the legal status of their employment relationship. To me, at least, the Supreme Court decision in Dynamex leaves ambiguity as to how this issue is to be sorted out in workers’ comp. From a policy standpoint the liberal construction of the workers’ comp law in California, mandated by statute, would seem to argue for the broader coverage afforded under the ABC employment test. But Dynamex stops short of this.

As a practical matter, however, if gig economy companies must begin treating workers as employees for wage and hour laws, they will be under great pressure to treat them as employees for workers’ comp. It is likely that as I am writing this the management of many gig economy companies are meeting with lawyers and venture investors to determine how to tweak their business models.

Here is a link to the opinion in Dynamex:

http://www.courts.ca.gov/opinions/documents/S222732.PDF

Further motions are scheduled in Grubhub, but you can find the decision in the Grubhub case current as of May 2018 here:

WorkersCompEmploymentStatus(GrubhubDecision)

Stay tuned.

Julius Young

https://www.boxerlaw.com/attorney/julius-o-young/

 

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