The Implications of Dynamex Operations West v. Superior Court:
California’s adoption of the ABC test for purposes
of the Wage Orders
By William Hays Weissman, Esq.
littler.com | Littler Mendelson, P.C.
I. EXECUTIVE SUMMARY
The California Supreme Court’s adoption of a strict ABC test for purposes of the wage orders is likely to
cause significant problems for California businesses that use independent contractors. Of particular concern
is the “B” prong of the test and the contours of the putative employer’s business. While at present the ABC
test applies only to the wage orders, which means that only non-exempt employees are subject, businesses
may find it difficult to implement the ABC test without implicating other aspects of the relationship, such
as taxes or workers’ compensation, such that conversion for all purposes may be necessary. Nonetheless,
there are many unresolved issues, and it remains to be seen how adoption of the ABC test will play
out in California.
II. DYNAMEX OPERATIONS WEST, INC. V. SUPERIOR COURT
California courts and state agencies had long applied what is known as the Borello test for determining
whether a worker is an independent contractor or employee for most purposes.
The Borello test is a
multi-factor test that looks primarily at whether the hiring entity had a “right to control” how services were
performed, along with other “secondary” factors, such as whether the worker was engaged in a distinct
occupation or business, the skill required in the particular occupation, and whether the worker or the hiring
entity supplied the tools used to perform the work and the place where the work was performed.
On April 30, 2018, the California Supreme Court abandoned the Borello test in favor of the ABC test
for purposes of the wage orders, which provide minimum wage, maximum hour, and working condition
requirements for specific industries. The wage order at issue in Dynamex imposes wage and hour obligations
for non-exempt employees in California. Section 2 of the wage order contains the following definitions:
(E) “Employ” means to engage, suffer, or permit to work.
(F) “Employee” means any person employed by an employer.
(G) “Employer” means any person as defined in Section 18 of the Labor Code, who directly
or indirectly, or through an agent or any other person, employs or exercises control over
the wages, hours, or working conditions of any person.
At issue in the case was the meaning of the term “employ,” and more specifically, what engage, suffer,
or permit to work means. In seeking to define these terms, the court held that the broadest possible
interpretation should be given, and thereafter adopted Massachusetts’ version of the ABC test. Under this
ABC test, workers are presumed to be employees unless all three of the following conditions are met:
(A) The individual is free from control and direction in connection with the performance of the
service, both under his contract for the performance of service and in fact; and
(B) The service is performed outside the usual course of the business of the employer; and,
(C) The individual is customarily engaged in an independently established trade, occupation,
profession or business of the same nature as that involved in the service performed.
Under the first prong, it is the right of control rather than the exercise of control that is legally determinative.
Further, the lack of control must exist both in contract and in practice.
To a large extent this is the control
aspect of the Borello test.
The second prong does away with the “place of business” exemption found in most ABC tests; one must
show that the worker’s job is independent, separate and distinct from the company’s business, and not a
regular or continuous part of the business.
The court described this prong as addressing “workers whose
roles are most clearly comparable to those of employees …” It then provides the following examples:
1 4 Cal.5th 903 (2018).
2 There are several specific statutory tests for both employment and non-employment status, such as the statutory exemption for tax
purposes for direct sellers. Cal. Unempl. Ins. Code, § 650. Nonetheless, other than a few limited statutory exceptions, the Borello
test had been applied to most statutes to determine worker status for decades.
3 See Mass. Gen. Laws c. 149, § 148B; Dynamex, Slip Op. at 68-69.
4 Dynamex, 4 Cal.5th at 958-962.
Thus, on the one hand, when a retail store hires an outside plumber to repair a leak in a
bathroom on its premises or hires an outside electrician to install a new electrical line, the
services of the plumber or electrician are not part of the store’s usual course of business and the
store would not reasonably be seen as having suffered or permitted the plumber or electrician to
provide services to it as an employee. On the other hand, when a clothing manufacturing company
hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company
that will thereafter be sold by the company, or when a bakery hires cake decorators to work on
a regular basis on its custom-designed cakes, the workers are part of the hiring entity’s usual
business operation and the hiring business can reasonably be viewed as having suffered or permitted
the workers to provide services as employees.
Cases from Massachusetts have explained that in looking at how to define the usual business, how the firm
defines its services may be important. For example, in Athol Daily News v. Board of Review of the Div. of
Empl. & Training
, the court found:
In light of the fact that the News itself defines its business as “publishing and distributing” a daily
newspaper, we agree that the carriers’ services are performed in “the usual course of [the News’s]
business.” See Mattatuck Museum-Mattatuck Historical Soc’y v. Administrator, Unemployment
Compensation Act, 238 Conn. 273, 280 (1996) (art instructor services performed “on a regular or
continuous basis” within art museum); Bigfoot’s, Inc. v. Board of Review of the Indus. Comm’n of
Utah, 710 P.2d 180, 181 (Utah 1985) (musicians performed “usual and customary” activity of beer
Yurs v. Director of Labor, 94 Ill. App. 2d 96, 104 (1968) (organist played music as “usual part of”
funeral home’s business).
The last prong asks whether the person is the impetus for being self-employed, exhibiting indicia of a
business such as incorporation, licensure, advertisements, or routine offerings to provide the services of the
independent business to the public or to a number of potential customers.
Taking the three prongs together, the new standard means that a business cannot engage an individual as
an independent contractor unless he or she has already established some kind of independent business to
provide services to the general public that are unrelated to the firm’s own usual business.
A. The “A” prong is similar to the control factor of the Borello test
The “A” prong of the new test is similar to the Borello test in looking at whether control exists, both in
contract and reality. In this sense it is not particularly new or different from what already existed. If a
business could not pass the Borello test, it would likely not pass the “A” prong of the ABC test either. So to
some extent that “A” prong should be the threshold for determining status regardless of whether the ABC
test or Borello test applies, and any failure to satisfy it should strongly suggest an employment relationship.
B. The “B” prong is unclear and likely very hard to satisfy
How a business is defined is not always clear. The business is often defined from a “production function”
perspective—that is, what it makes. The court provides a couple of overly simplistic examples that belie
modern business reality. For example, the court explains that if a retail store hires an outside plumber to
repair a leak in a bathroom and an electrician to install a new electrical line, “the services of the plumber or
electrician are not part of the store’s usual course of business as the store would not reasonably be seen
6 Dynamex, 4 Cal.5th at 959-960 (internal citations omitted).
7 439 Mass. 171 (2003).
8 Id., at 179.
9 Id., at 962 (italics in the original) (internal citation omitted).
as having suffered or permitted the plumber or electrician to provide services to it as an employee.”
This statement raises so many questions.
For example, what is the “usual course of business” of a retail store? The court does not say, and it is never
defined anywhere in the opinion. If we do not know what that business is, how can anyone know whether a
service is or is not in the usual course of such business? The answer of course is we just assume we know or
get to guess based on the description “retail store” that its business is “selling” some kind of tangible goods.
The court’s analysis now suggests that the “B” prong is based on assuming what a business does.
Further, the court says plumber and electrician would “not reasonably be seen” as being in the usual
business, but does not say by whom? Seen by the retail store, by the workers at issue or by the government?
The answer would seem to be by the worker, insofar as he or she complains about the relationship, and next
by the government, which generally gets the first pass at deciding how to characterize the relationship when
there is a dispute. That the business and worker have a dispute, however, just demonstrates that the “seen”
aspect of this factor is an entirely subjective standard.
Let’s tweak the facts a bit. What if the retail store is part of a large chain that has its own maintenance
staff that includes plumbers and electricians? Are maintenance and repairs then part of the usual business
of the retail store? If so, if it still hires an outside plumber or electrician, does that create an employment
relationship under the “B” prong? What if that outside plumber has his own truck, tools, advertising, and
other clients? Is he then in business for himself as a “traditional independent contractor” under the “C”
prong, particularly if the retail store does not “control” him under the “A” prong? What if the electrician is a
retired electrician that happens to be a friend of the store manager, and offers to fix whatever electrical issue
exists for a small fee? Is he an employee because the “C” prong is not met or because the “B” prong is not
met, or both? These kind of practical questions have no answer in the court’s opinion.
The court goes on to distinguish the plumber and electrician from the situation where “a clothing
manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied
by the company that will thereafter be sold by the company” or “when a bakery hires cake decorators to
work on a regular basis on its custom-designed cakes …” The court find that in these cases “the workers
are part of the hiring entity’s usual business operation and the hiring business can reasonably be viewed as
having suffered or permitted the workers to provide services as employees.” The court concludes that the
seamstresses’ and bakers’ “role within the hiring entity’s usual business operations is more like that of an
employee than that of an independent contractor.”
Once again, the court’s conclusions lack any real analysis. What does it mean to say the cake decorators
“work on a regular basis?” What work are they performing, and what does regular mean? What if the
seamsters make dresses for dozens of companies, and market themselves to such companies, consistent
with the “C” prong? Do those facts matter?
What is telling from the court’s superficial examples is not what it says, but everything the court choses to
omit that could make the question difficult to answer. By failing to address any complex modern examples,
the court lets itself off the hook of having to apply its take to the real world.
Another area of concern in the modern economy are service referral agencies that facilitate the matching of
independent contractors with client opportunities, or that provide independent contractors who engage the
agency access to client opportunities. The courts in other states have reached different conclusions on these
kinds of businesses, and it is now unknown how that will play out in California.
In Curry v. Equilon Enterprises, LLC,
a published opinion rendered only a few weeks after the California
Supreme Court’s Dynamex opinion, the appellate court addressed the ABC test in the context of a joint
employer case. The case involved whether an employee of a company that leased services stations from
10 Compare State of Nevada Department of Employment v. Reliable Health Care Services of Southern Nevada, Inc., 983 P.2d. 414
(Nev. 1999) (determining an agency that refers respiratory technicians to clients to be in the business of brokering workers, and
the technicians to be in the different business of providing client care), with Home Care Professionals of Arkansas, Inc., v. Williams,
2007 Ark. App. LEXIS 339 (Ark. App. 2006) (determining a registry that refers caregivers who provide home care to be in the
business of providing home care).
11 22 Cal.App.5th 772 (2018).
Shell was also an employee of Shell under a joint employment theory. Applying the Dynamex’s court analysis
of the ABC test, the Curry court stated:
The “B” factor requires an examination of whether “the worker performs work that is outside the
usual course of the hiring entity’s business.” (See Dynamex, supra, 2018 Cal. LEXIS 3162, *90.) For
example, if a bakery hires cake decorators to work on a regular basis, then those cake decorators
are likely working within the bakery’s “usual business operation,” and thus would be employees.
Whereas an electrician hired to work at a bakery would likely be viewed as not working within
the bakery’s usual course of business and therefore would not be viewed as an employee.
(Id. at *92–93.)
We concluded ante that Curry was engaged in the distinct occupation of an ARS station manager.
We also concluded ante that Curry’s “management of two gas stations was part of ARS’s regular
business because ARS’s business involved operating gas stations.” We explained that “Shell was not
in the business of operating fueling stations—it was in the business of owning real estate and fuel.”
Thus, there is not a triable issue of fact as to the “B” factor because managing a fuel station was not
the type of business in which Shell was engaged.
(Id. at *22-23.)
This published opinion suggests that it is possible to draw distinctions between two businesses, and thus
could support arguments for referral agency or platform-type businesses. It seems likely the lack of any
control by Shell over the worker’s job duties (the “A” prong) was likely significant in how the court evaluated
the “B” prong as well. While that might bode well for referral-type businesses, this is only one appellate court
opinion. Given the growing importance of such a business model to the modern economy, this area is likely
to garner significant litigation over the next few years.
C. The “C” prong
The “C” prong is also potentially problematic for many businesses. Although arguably the “C” prong was
previously a factor to consider under the Borello test, the new test appears to require that the individual (1)
was already in business for him- or herself and (2) works in a customarily independent profession. This latter
requirement is less clear than the former, and whether new professions – work that does not yet exist – could
ever become “customarily” independent is open for debate. The court’s reference to plumbers, electricians,
and attorneys does little to aid in this analysis.
In Curry, the court explained the “C” prong as follows:
The “C” factor requires evidence “that the worker is customarily engaged in an independently
established trade, occupation, or business of the same nature as that involved in the work
performed.” (See Dynamex, supra, 2018 Cal. LEXIS 3162, *88.) This factor can be proven with
evidence that the worker has “take[n] the usual steps to establish and promote his or her
independent business—for example, through incorporation, licensure, advertisements, routine
offerings to provide the services of the independent business to the public or to a number of
potential customers, and the like.” (Id. at *97.)
As explained ante, in the policy section of this discussion, the “ABC” test is directed toward the issue
of allegedly misclassified independent contractors. Trying to apply the “C” factor in a joint
employment case will lead to an analysis that is a blend of the “A” and “B” factors, e.g., whether Curry
was engaged in an occupation independent from the alleged secondary employer.
What the “C” prong allows is for either a worker or trier of fact to argue that not enough was done to
establish a business. For example, if individuals do not incorporate and rely upon word-of-mouth advertising,
have they taken the “usual steps to establish and promote” the business? These questions make the “C”
factor an easy target for failure to meet the burden of proof arguments without ever having to articulate
what evidence would be sufficient to meet it.
12 Curry, at *22-*23.
13 Id., at *23-*24.
Moreover, the “C” prong raises serious questions about how anyone starts a business. For example, an
individual may not want to incur, nor be able to incur, the costs of incorporating or engaging in substantive
marketing and advertising. Every new business has a first customer, but if the worker fails in his or her efforts
to obtain other customers, does that put the first customer at risk? In a way, the “C” prong appears to
require some kind of implicit guarantee that individuals will be successful in their entrepreneurship, because
if they fail early, those first few customers may now be at risk of claims of misclassification (likely through
unemployment claims). If all service recipients will then shy away from new businesses, how can they ever
get off the ground and be successful?
In Cook v. Estes Express Lines, Corp.,
a federal court recently found that under Massachusetts’ ABC test, an
individual who had incorporated, owned several trucks, and had workers who performed services for him,
was not an “individual” for misclassification purposes. While noting that incorporation itself was not a strict
bar to recovery, the court held that when the “individual” spends his time managing his business rather than
performing services in an individual capacity, he falls outside the scope of the ABC test.
D. Multiple tests now apply, which may not be practical for many businesses
The petitioner Dynamex argued to the California Supreme Court that having two separate tests – one for the
wage orders and one for other aspects of the Labor Code (not to mention for other purposes, such as state
taxes) – would create confusion and be unworkable in practice. The court rejected this argument, stating
that the wage order “purposefully adopts its own definition” of who is an employee “to govern application
of the wage order’s obligations that is intentionally broader than the standard of employment that would
otherwise apply.” The court went on to state that “any potential inconsistency” arises from the wage order’s
broad definition, and that “it is possible under Borello that a worker may properly be considered any
employee with reference to one statute but not another.” Thus, while not explicit, the court appeared to
endorse the Borello standard for various aspects of the Labor Code, including for worker’s compensation
purposes, even as it adopted the broader ABC test for the wage orders.
The question, of course, is how practical it is to have a person deemed an “employee” for purposes of
minimum wages, but not for other purposes, such as expense reimbursements, wage statements, workers’
compensation or state taxes. For example, the requirement to pay “wages” to employees under a wage
order could be inconsistent with the determination that no wages are paid for tax purposes. Even if the court
did not seem to care about these inconsistencies, businesses may have a hard time operating, which in turn
could trigger other disputes rather than resolve them.
IV. RECOMMENDED PRACTICES
In light of the substantial uncertainty surrounding worker status, there are a number steps that service
recipients can take to address the uncertainty caused by the Dynamex decision.
• Analyze whether the worker would be exempt. Because the Dynamex decision applies only
to the wage orders, as a practical matter that means it applies only to workers who are
non-exempt employees. Independent contractors who would qualify as exempt if they were
employees would fall outside the wage order’s protections. Thus, even if the workers are
“employees” under the ABC test, the wage order would not apply and the workers could still
potentially qualify as independent contractors for all other purposes under the Borello test.
• Analyze whether it matters if they are subject to the wage orders. Because the wage orders
impact only a limited number of issues, chiefly minimum wage, meal and rest periods, overtime,
reporting time pay, payments for required uniforms, and rules relating to meals and lodging, it
may be of little consequence if a worker is an employee for wage order purposes. For example,
14 2018 U.S. Dist. LEXIS 65009 (D. Mass. Apr. 12, 2018).
15 See also Michael v. Pella Products, Inc., 14 N.E.3d 533 (Ill. 2014) (bona fide corporation not an individual for purposes of the Illinois’
Employee Classification Act); Resilient Floor Decorators Vacation Fund v. Contract Carpet, Inc. et al., 1993 U.S. Dist. LEXIS 18768
(E.D. Mich. 1993) (rejecting that court could pierce the corporate veil to hold corporations were actually individuals); Sargent v.
Commissioner, 929 F.2d 1252 (8th Cir. 1991).
16 See, e.g., Cal. Lab. Code, §§ 201, 202, 203, 203.1, 203.5, 204a, 206, 206.5, 208, 209, 212, 218.6, 221, 226(a), 226.8, 227, 227.3, 227.5,
230.5, 230.7, 230.8, 231, 232, 233, 240, 243, 351, 353, 2082, 2800, and 2810.5 (all Labor Code provision that are not covered by the
assume a business uses independent contractors to perform services a couple of days per week
for four-hour shifts. Assume they are being paid at least minimum wage. Converting these
contractors to employees subject to the wage orders is likely to have little impact. Because of
the length of the shifts, meal and rest periods and overtime are not issues. With careful planning,
reporting time pay could be avoided as well. Thus, an analysis of the nature of the services and
work in the context of liability under the wage order may reveal that reclassification would not
result in significant risk.
• Recognize that the wage orders address limited issues. As noted in the bullet above, because
the wage orders address only a limited number of issues, a Borello analysis remains for most
other purposes, including workers’ compensation and state taxes. However, businesses should
expect that there will be attempts to expand the definition of an employee using the ABC test to
cover other aspects of the Labor Code and state taxes. While the court’s own opinion appears to
reject such expansion, that will not stop attempts to do so.
• Recognize there are unanswered questions about the application of the ABC test.
There remain a number of unanswered questions. One is whether the opinion applies
prospectively or retroactively. The California Supreme Court has agreed to decide whether to
address this issue. Knowing whether the opinion applies only on a forward-going basis would
provide at least some certainty that employers will not be liable for following the Borello
test in the past.
• Transportation businesses may have a unique exemption under the FAAAA. Businesses engaged
in the transportation industry may have a unique exemption under the Federal Aviation
Administration Authorization Act of 1994 (FAAAA).
In Massachusetts Delivery
Association v. Coakley.
the First Circuit held that the FAAAA preempts the “B” prong of
Massachusetts ABC test.
The Western States Trucking Association already plans to challenge
the ABC test under the FAAAA. Further, the “Denham Amendment,” which has already
passed the U.S. House of Representatives, would amend the FAAAA to clearly exempt
carriers from complying with state laws that require employers to provide paid meal and rest
breaks to employees. It also would preempt state rules on misclassification of truck drivers.
Even if the amendment does not get enacted and the Ninth Circuit were to rule against
FAAAA preemption, that would set up a circuit split that could get resolved by the United
States Supreme Court (although any such resolution is probably a few years away at the earliest).
• Carefully review the business. Following the example in Curry, businesses should take care to
define their business and how it relates (or better, does not relate) to the services being
performed for purposes of the “B” prong. Further, as pointed out in Athol Daily News, businesses
should carefully review the kinds of public statements made in marketing material and websites
that describe the business and refine them as appropriate.
• Ensure the business can meet the “A” prong. Businesses should take steps to ensure they can
meet the “A” prong of the test. If a business exhibits control such that the “A” test fails, then it
likely fails the Borello test as well, and the workers would likely need to be classified as employees
for all purposes. Review contracts to ensure they do not contain any suggestion of control.
• Ensure the “C” prong is met. Lastly, make sure that the worker is a bona fide independent
contractor, has all required licenses and other clients, and holds himself or herself out to an
appropriate market as being in the business of providing such services. While small businesses
17 49 U.S.C. § 14501 et seq.
18 769 F.3d 11 (2014).
19 See also Mass. Delivery Ass’n v. Healey, 821 F.3d 187 (1st Cir. 2016) (holding that the FAAAA preempts the “B” prong of
Massachusetts ABC test for same-day delivery companies because application of it would require judicial determination of whether
particular services fit within its usual course of business); Schwann v. FedEx Ground Package Sys. 813 F.3d 429 (1st Cir. 2016)
(holding that the “B” prong as applied was preempted by the FAAAA because it sufficiently related to defendant’s service in that it
would prevent independent contractors from performing first-and-last mile pickups and therefore have a significant impact on the
actual routes followed for the pick-up and delivery of packages); Rice v. Diversified Specialty Pharm., LLC 33 Mass. L. Rep. 469 (1st
Cir. 2016) (holding that driver’s claims were facially preempted by the FAAAA in the delivery context because classification as an
employee would have a substantial effect on defendant’s routes, rates, and services).
are great, do not be someone’s first customer, and gather appropriate documentation before the
start of any engagement (business license, business card, advertising, references). A business
could also consider establishing contracting standards and not contracting with any business
that does not meet them. These standards could include contracting only with legal entities
(whether C or S corporations or limited liability companies). Using bona fide corporations may
add a further argument that the workers fall entirely outside the ABC test because they are not
performing services as individuals.
Taking some of the above steps while recognizing that the contours of the ABC test are far from settled
should help businesses deal with this significant change in California law. Businesses that have concerns
about how to implement changes should consult counsel.
littler.com | Littler Mendelson, P.C.