On April 30, 2018, the California Supreme Court rejected a delivery company’s challenge to a trial court’s decision to certify a class of delivery drivers in a wage and hour class action case, embracing a standard that presumes workers are employees instead of independent contractors. The high court’s ruling adopts a much broader definition of the term “employ,” which as a result expands the meaning of the term “employee.” This is a significant departure from the more flexible classification test used in California for almost 30 years, and the potential ramifications of the new definition upon the future use of independent contractors impact all California business utilizing independent contractors.

The lawsuit involves two delivery drivers suing Dynamex Operations West, Inc., a nationwide package and document delivery company, on their own behalf and on behalf of a class of allegedly similarly situated drivers, alleging Dynamex misclassified its delivery drivers as independent contractors rather than employees. As a result of the misclassification, the plaintiffs claimed Dynamex violated provisions of Industrial Welfare Commission Wage Order 9 as well as various sections of the Labor Code. The court addressed the issue of whether workers should be classified as employees or as independent contractors for purposes of California wage orders.

In its decision, the Supreme Court concluded the “suffer or permit to work” definition must be interpreted broadly to treat as “employees,” and thereby provide the wage order’s protection to all workers who would ordinarily be viewed as working in the hiring business. The court eschewed its own ruling in the 1989 state Supreme Court case titled S.G. Borello & Sons Inc. v. Department of Industrial Relations, which emphasized a multifactor test based on an employer’s control over workers claiming employee status, for the more commonly used “ABC” test to determine whether the workers constituted employees or independent contractors. The “ABC” standard presumes all workers are employees unless a business can show the worker is free from the control and direction of the hirer in connection with the performance of the work, performs work that is outside the usual course or place of business and works “in an independently established trade, occupation, or business of the same nature” as the work they do for the entity that is hiring them.

In applying the ABC test to whether Dynamex’s drivers are employees or independent contractors for purposes of the wage order, the Supreme Court concluded there was sufficient commonality of interest within the certified class to permit litigation on a class basis.

The decision in Dynamex Operations v. Superior Court is extremely important for all companies that use independent contractors. Failing to properly classify workers can create liability for back wages, penalties, fines and the assessment of back taxes. Additional exposure can also arise when misclassified workers, who would otherwise be entitled to employee benefits, have not received those benefits. We recommend employers remain vigilant in assessing their independent contractor classifications in light of the court’s ruling and scrutinize their existing worker relationships.

The case is Dynamex Operations West Inc. v. The Superior Court of Los Angeles County, case number S222732, in the Supreme Court of California.