Dynamex Does Not Actually Apply to Workers’ Compensation… or Does It?

By Scott Darling

For those who somehow have not heard, the California Supreme Court issued a decision in 2018 that significantly impacted the age-old debate of who is an employee and who is an independent contractor.

In Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal. 5th 903, the California Supreme Court established what has been referred to as the “ABC Test” for deciding whether a person is an employee or independent contractor. In doing so, the Court went away from what has been the standard of the industry, which has commonly been referred to as the “Borello factors” established by the California Supreme Court in the 1989 case S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal. 3d 341.

Borello Factors

Under the previously established Borello case the primary factor is whether the person to whom services are rendered has the right to control the manner and means of accomplishing the result desired. There are also nine additional factors to consider, with no one factor being conclusive on its own:

  1. Right to discharge at will, without cause;
  2. Whether the one performing the services in engaged in a distinct occupation or business;
  3. The kind of occupation, with reference to whether in the locality the work is usually done under the direction of the principal or by a specialist without supervision;
  4. The skill required in the particular occupation;
  5. Whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
  6. The length of time for which the services are to be performed;
  7. Whether or not the work is part of the regular business of the principal; and
  8. Whether or not the parties believe they are creating the relationship of employer-employee.

These factors have been used to determine whether or not an injured worker is an employee for which the employer is liable for workers’ compensation benefits or is deemed an independent contractor.

Dynamex Facts

The Dynamex case involved a corporation (Dynamex) which operates as a delivery service, using various methods, for which they utilized individual drivers to conduct business. Initially, Dynamex drivers were considered employees. However, in 2004, the company changed them to be independent contractors. In the lawsuit, two delivery drivers sued on their own behalf and on behalf of a class of other similarly situated drivers. The complaint alleged that Dynamex had misclassified its delivery drivers as independent contractors rather than employees. The drivers claimed that Dynamex’s alleged misclassification of its drivers as independent contractors led to Dynamex’s violation of the provisions of Industrial Welfare Commission wage order No. 9, the applicable state wage order governing the transportation industry, as well as various sections of the Labor Code, resulting in Dynamex’s engaging in unfair and unlawful business practices under Business and Professions Code section 17200.

ABC Test

In Dynamex, the California Supreme Court established a whole new test, under which they ruled that the plaintiffs in the Dynamex case were indeed employees and not independent contractors as Dynamex had tried to argue.

In creating the test, the Court looked at the Borello Factors and fashioned a scaled down version which appears to center around the initial factor. The “ABC Test”, as it has become known as, states a person is an independent contractor to whom a wage order does not apply if:

  1. (A) The person is free from the control and direction of the hirer in connection with the performance of the work;
  2. (B) The person performs work that is outside the usual course of the hiring entity’s business; and
  3. (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

To be clear, when the California Supreme Court established this test, they did so with the indication that it would only apply to cases involving wage order issues. They specifically stated as such when they said: “The issue in this case relates to the resolution of the employee or independent contractor question in one specific context”; and “Here we must decide what standard applies, under California law, in determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders…”

But is that really the case?

Post-Dynamex World

Since the establishment of the ABC Test in Dynamex, there has been much debate on its application in the workers’ compensation industry and while the Dynamex Court made clear that the holding was for purposes of wage order issues only, many have suggested that there may be a shift in the way all Courts begin to analyze who is an employee and who is an independent contractor.

To date, there has been only one known workers’ compensation case which has attempted to utilize the ABC Test. However, in that case, Perkins v. Don L. Knox (2018 Cal. Wrk. Comp. P.D. LEXIS 490), a panel of WCAB commissioners, in overturning a WCAB Judge’s use of the ABC Test, firmly state that Dynamex did not overturn Borello and that the Borello factors are still the rule of the land with regard to workers’ compensation cases. In support of its position, the commissioners pointed to the fact that the California Supreme Court clearly appeared to limit its holding to wage order cases.

So that is it then, right? Not so fast…

Despite its apparent limited scope, the Dynamex case has created shock waves throughout California and those waves are now reaching the California Legislature. As part of the upcoming 2019 term, two separate bills have been introduced. The first, Assembly Bill (AB) 5, introduced by Lorena Fletcher, a Democrat from San Diego, seeks to codify the ABC Test into the Labor Code, thereby having wide implications for areas beyond wage orders, including the workers’ compensation arena.

The second, AB 71, introduced by Melissa Melendez, a Republican out of Lake Elsinore, seeks to do just the opposite and codify the factors established by the Borello case and essentially nullify the decision set forth by the California Supreme Court in Dynamex.

As can been seen, there is still much debate to be had on the issue and we have not heard the last of Dynamex in the workers compensation industry. To be certain, the California Applicant’s Attorney Association (CAAA) is putting its support behind AB 5 to expand the scope of employees. Please feel free to contact our office if you would like to discuss the topics discussed in this article.