Docket No. S222732
Dynamex Operations West, Inc. v. Superior Court
Filed 4/30/18
IN THE SUPREME COURT OF CALIFORNIA
DYNAMEX OPERATIONS WEST, INC.,
Petitioner,
S222732
v.
Ct.App. 2/7 B249546
THE SUPERIOR COURT OF
LOS ANGELES COUNTY,
Los Angeles County
Respondent;
) Super Ct. No. BC332016
CHARLES LEE et al.,
Real Parties in Interest.
Under both California and federal law, the question whether an individual
worker should properly be classified as an employee or, instead, as an independent
contractor has considerable significance for workers, businesses, and the public
generally.1 On the one hand, if a worker should properly be classified as an
employee, the hiring business bears the responsibility of paying federal Social
Security and payroll taxes, unemployment insurance taxes and state employment
taxes, providing worker’s compensation insurance, and, most relevant for the
1
See United States Department of Labor, Commission on the Future of
Worker-Management Relations (1994) page 64 [“The single most important factor
in determining which workers are covered by employment and labor statutes is the
way the line is drawn between employees and independent contractors”]
<https://digitalcommons.ilr.cornell.edu/key_workplace/2/> (as of Apr. 30, 2018).
1
present case, complying with numerous state and federal statutes and regulations
governing the wages, hours, and working conditions of employees. The worker
then obtains the protection of the applicable labor laws and regulations. On the
other hand, if a worker should properly be classified as an independent contractor,
the business does not bear any of those costs or responsibilities, the worker obtains
none of the numerous labor law benefits, and the public may be required under
applicable laws to assume additional financial burdens with respect to such
workers and their families.
Although in some circumstances classification as an independent contractor
may be advantageous to workers as well as to businesses, the risk that workers
who should be treated as employees may be improperly misclassified as
independent contractors is significant in light of the potentially substantial
economic incentives that a business may have in mischaracterizing some workers
as independent contractors. Such incentives include the unfair competitive
advantage the business may obtain over competitors that properly classify similar
workers as employees and that thereby assume the fiscal and other responsibilities
and burdens that an employer owes to its employees. In recent years, the relevant
regulatory agencies of both the federal and state governments have declared that
the misclassification of workers as independent contractors rather than employees
is a very serious problem, depriving federal and state governments of billions of
dollars in tax revenue and millions of workers of the labor law protections to
which they are entitled.2
2
See United States Department of Labor, Wage & Hour Division,
Misclassification of Employees as Independent Contractors
<https://www.dol.gov/whd/workers/misclassification/> (as of Apr. 30, 2018);
California Department of Industrial Relations, Worker Misclassification
<http://www.dir.ca.gov/dlse/worker_misclassification.html> (as of Apr. 30, 2018);
(footnote continued on next page)
2
The issue in this case relates to the resolution of the employee or
independent contractor question in one specific context. 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, which impose obligations relating to the minimum wages,
maximum hours, and a limited number of very basic working conditions (such as
minimally required meal and rest breaks) of California employees.3
In the underlying lawsuit in this matter, two individual delivery drivers,
suing on their own behalf and on behalf of a class of allegedly similarly situated
drivers, filed a complaint against Dynamex Operations West, Inc. (Dynamex), a
nationwide package and document delivery company, alleging 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, and, as a
result, that Dynamex had engaged in unfair and unlawful business practices under
Business and Professions Code section 17200.
(footnote continued from previous page)
see also National Employment Law Project, Independent Contractor
Misclassification Imposes Huge Costs on Workers and Federal and State
Treasuries (July 2015) pp. 2-6 <http://nelp.org/content/uploads/Independent-
Contractor-Costs.pdf> (as of Apr. 30, 2018).
3
In California, wage orders are constitutionally-authorized, quasi-legislative
regulations that have the force of law. (See Cal. Const., art. XIV, § 1; Lab. Code,
§§ 1173, 1178, 1178.5, 1182, 1185; Industrial Welfare Com. v. Superior Court
(1980) 27 Cal.3d 690, 700-703 (Industrial Welf. Com.).
3
Prior to 2004, Dynamex classified as employees drivers who allegedly
performed similar pickup and delivery work as the current drivers perform.
In 2004, however, Dynamex adopted a new policy and contractual arrangement
under which all drivers are considered independent contractors rather than
employees. Dynamex maintains that, in light of the current contractual
arrangement, the drivers are properly classified as independent contractors.
After an earlier round of litigation in which the trial court’s initial order
denying class certification was reversed by the Court of Appeal (Lee v. Dynamex,
Inc. (2008) 166 Cal.App.4th 1325), the trial court ultimately certified a class
action embodying a class of Dynamex drivers who, during a pay period, did not
themselves employ other drivers and did not do delivery work for other delivery
businesses or for the drivers’ own personal customers. In finding that the relevant
common legal and factual issues relating to the proper classification of the drivers
as employees or as independent contractors predominated over potential individual
issues, the trial court’s certification order relied upon the three alternative
definitions of “employ” and “employer” set forth in the applicable wage order as
discussed in this court’s then-recently decided opinion in Martinez v. Combs
(2010) 49 Cal.4th 35, 64 (Martinez). As described more fully below, Martinez
held that “[t]o employ . . . under the [wage order], has three alternative definitions.
It means: (a) to exercise control over the wages, hours, or working conditions, or
(b) to suffer or permit to work, or (c) to engage, thereby creating a common law
employment relationship.” (49 Cal.4th at p. 64.) The trial court rejected
Dynamex’s contention that in the wage order context, as in most other contexts,
the multifactor standard set forth in this court’s seminal decision in S. G. Borello
& Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello
is the only appropriate standard under California law for distinguishing employees
and independent contractors.
4
In response to the trial court’s denial of Dynamex’s subsequent motion to
decertify the class, Dynamex filed the current writ proceeding in the Court of
Appeal, maintaining that two of the alternative wage order definitions of “employ”
relied upon by the trial court do not apply to the employee or independent
contractor issue. Dynamex contended, instead, that those wage order definitions
are relevant only to the distinct joint employer question that was directly presented
in this court’s decision in Martinez — namely whether, when a worker is an
admitted employee of a primary employer, another business or entity that has
some relationship with the primary employer should properly be considered a joint
employer of the worker and therefore also responsible, along with the primary
employer, for the obligations imposed by the wage order.
The Court of Appeal rejected Dynamex’s contention, concluding that
neither the provisions of the wage order itself nor this court’s decision in Martinez
supported the argument that the wage order’s definitions of “employ” and
“employer” are limited to the joint employer context and are not applicable in
determining whether a worker is a covered employee, rather than an excluded
independent contractor, for purposes of the obligations imposed by the wage
order. The Court of Appeal concluded that the wage order definitions discussed in
Martinez are applicable to the employee or independent contractor question with
respect to obligations arising out of the wage order. The Court of Appeal upheld
the trial court’s class certification order with respect to all of plaintiffs’ claims that
are based on alleged violations of the wage order.
At the same time, the Court of Appeal concluded that insofar as the causes
of action in the complaint seek reimbursement for business expenses such as fuel
and tolls that are not governed by the wage order and are obtainable only under
5
section 2802 of the Labor Code,4 the Borello standard is the applicable standard
for determining whether a worker is properly considered an employee or an
independent contractor. With respect to plaintiffs’ non-wage-order claim under
section 2802, the Court of Appeal remanded the matter to the trial court to
reconsider its class certification of that claim pursuant to a proper application of
the Borello standard as further explicated in this court’s decision in Ayala v.
Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522 (Ayala).
Dynamex filed a petition for review in this court, challenging only the
Court of Appeal’s conclusion that the wage order definitions of “employ” and
“employer” discussed in Martinez are applicable to the question whether a worker
is properly considered an employee or an independent contractor for purposes of
the obligations imposed by an applicable wage order. We granted review to
consider that issue.5
For the reasons discussed below, we agree with the Court of Appeal that the
trial court did not err in concluding that the “suffer or permit to work” definition
of “employ” contained in the wage order may be relied upon in evaluating whether
4
Unless otherwise specified, all further statutory references are to the Labor
Code.
5
In their answer brief filed in this court, the drivers challenge the Court of
Appeal’s conclusion that the Borello standard is applicable to their cause of action
under section 2802 insofar as that claim seeks reimbursement for business
expenses other than business expenses encompassed by the wage order. The
drivers contend that the wage order definitions should apply to all the relief sought
under section 2802, maintaining that the obligation to reimburse business expenses
is necessary to preclude circumvention of the minimum and overtime wage
obligations imposed by the wage order. The drivers, however, did not seek review
of that aspect of the Court of Appeal decision or file an answer to the petition for
review requesting review of that issue. Accordingly, that issue is not before us
and we express no view on that question. (Cal. Rules of Court, rules 8.500(a),
8.516(b).
6
a worker is an employee or, instead, an independent contractor for purposes of the
obligations imposed by the wage order. As explained, in light of its history and
purpose, we conclude that the wage order’s 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. At the same time, we conclude that the suffer or permit to
work definition is a term of art that cannot be interpreted literally in a manner that
would encompass within the employee category the type of individual workers,
like independent plumbers or electricians, who have traditionally been viewed as
genuine independent contractors who are working only in their own independent
business.
For the reasons explained hereafter, we conclude that in determining
whether, under the suffer or permit to work definition, a worker is properly
considered the type of independent contractor to whom the wage order does not
apply, it is appropriate to look to a standard, commonly referred to as the “ABC”
test, that is utilized in other jurisdictions in a variety of contexts to distinguish
employees from independent contractors. 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.
Although, as we shall see, it appears from the class certification order that
the trial court may have interpreted the wage order’s suffer or permit to work
7
standard too literally, we conclude that on the facts disclosed by the record, the
trial court’s certification order is nonetheless correct as a matter of law under a
proper understanding of the suffer or permit to work standard and should be
upheld.
Accordingly, we conclude that the judgment of the Court of Appeal should
be affirmed.
I. FACTS AND PROCEEDINGS BELOW
We summarize the facts as set forth in the prior Court of Appeal opinions in
this matter, supplemented by additional facts set forth in the record.
Dynamex is a nationwide same-day courier and delivery service that
operates a number of business centers in California. Dynamex offers on-demand,
same-day pickup and delivery services to the public generally and also has a
number of large business customers — including Office Depot and Home
Depot — for whom it delivers purchased goods and picks up returns on a regular
basis. Prior to 2004, Dynamex classified its California drivers as employees and
compensated them pursuant to this state’s wage and hour laws. In 2004, Dynamex
converted all of its drivers to independent contractors after management concluded
that such a conversion would generate economic savings for the company. Under
the current policy, all drivers are treated as independent contractors and are
required to provide their own vehicles and pay for all of their transportation
expenses, including fuel, tolls, vehicle maintenance, and vehicle liability
insurance, as well as all taxes and workers’ compensation insurance.
Dynamex obtains its own customers and sets the rates to be charged to
those customers for its delivery services. It also negotiates the amount to be paid
to drivers on an individual basis. For drivers who are assigned to a dedicated fleet
or scheduled route by Dynamex, drivers are paid either a flat fee or an amount
based on a percentage of the delivery fee Dynamex receives from the customer.
8
For those who deliver on-demand, drivers are generally paid either a percentage of
the delivery fee paid by the customer on a per delivery basis or a flat fee basis per
item delivered.
Drivers are generally free to set their own schedule but must notify
Dynamex of the days they intend to work for Dynamex. Drivers performing on-
demand work are required to obtain and pay for a Nextel cellular telephone
through which the drivers maintain contact with Dynamex. On-demand drivers
are assigned deliveries by Dynamex dispatchers at Dynamex’s sole discretion;
drivers have no guarantee of the number or type of deliveries they will be offered.
Although drivers are not required to make all of the deliveries they are assigned,
they must promptly notify Dynamex if they intend to reject an offered delivery so
that Dynamex can quickly contact another driver; drivers are liable for any loss
Dynamex incurs if they fail to do so. Drivers make pickups and deliveries using
their own vehicles, but are generally expected to wear Dynamex shirts and badges
when making deliveries for Dynamex, and, pursuant to Dynamex’s agreement
with some customers, drivers are sometimes required to attach Dynamex and/or
the customer’s decals to their vehicles when making deliveries for the customer.
Drivers purchase Dynamex shirts and other Dynamex items with their own funds.6
In the absence of any special arrangement between Dynamex and a
customer, drivers are generally free to choose the sequence in which they will
make deliveries and the routes they will take, but are required to complete all
assigned deliveries on the day of assignment. If a customer requests, however,
6
Although several drivers indicated in depositions that they did not wear
Dynamex shirts when making deliveries for Dynamex, it is undisputed that
Dynamex retains the authority to require drivers to wear such shirts by agreeing to
such a condition with the customer to whom a pick-up or delivery is to be made.
9
drivers must comply with a customer’s requirements regarding delivery times and
sequence of stops.
Drivers hired by Dynamex are permitted to hire other persons to make
deliveries assigned by Dynamex. Further, when they are not making pickups or
deliveries for Dynamex, drivers are permitted to make deliveries for another
delivery company, including the driver’s own personal delivery business. Drivers
are prohibited, however, from diverting any delivery order received through or on
behalf of Dynamex to a competitive delivery service.
Drivers are ordinarily hired for an indefinite period of time but Dynamex
retains the authority to terminate its agreement with any driver without cause, on
three days’ notice. And, as noted, Dynamex reserves the right, throughout the
contract period, to control the number and nature of deliveries that it offers to its
on-demand drivers.
In January 2005, Charles Lee — the sole named plaintiff in the original
complaint in the underlying action — entered into a written independent
contractor agreement with Dynamex to provide delivery services for Dynamex.
According to Dynamex, Lee performed on-demand delivery services for Dynamex
for a total of 15 days and never performed delivery service for any company other
than Dynamex. On April 15, 2005, three months after leaving his work at
Dynamex, Lee filed this lawsuit on his own behalf and on behalf of similarly
situated Dynamex drivers.
In essence, the underlying action rests on the claim that, since December
2004, Dynamex drivers have performed essentially the same tasks in the same
manner as when its drivers were classified as employees, but Dynamex has
improperly failed to comply with the requirements imposed by the Labor Code
and wage orders for employees with respect to such drivers. The complaint
alleges five causes of action arising from Dynamex’s alleged misclassification of
10
employees as independent contractors: two counts of unfair and unlawful business
practices in violation of Business and Professions Code section 17200, and three
counts of Labor Code violations based on Dynamex’s failure to pay overtime
compensation, to properly provide itemized wage statements, and to compensate
the drivers for business expenses.
The trial court’s initial order denying class certification was reversed by the
Court of Appeal based on the trial court’s failure to compel Dynamex to provide
contact information for potential putative class members that would enable
plaintiffs to establish the necessary elements for class certification. (See Lee v.
Dynamex, supra, 166 Cal.App.4th 1325, 1336-1338.) After the trial court
permitted plaintiffs to file a first amended complaint adding Pedro Chevez (a
former Dynamex dedicated fleet driver) as a second named plaintiff and the parties
stipulated to the filing of a second amended complaint (the current operative
complaint), the parties agreed to send questionnaires to all putative class members
seeking information that would be relevant to potential class membership.
Based on the responses on the questionnaires that were returned by current
or former Dynamex drivers, plaintiffs moved for certification of a revised class of
Dynamex drivers. As ultimately modified by the trial court, the proposed class
includes those individuals (1) who were classified as independent contractors and
performed pickup or delivery service for Dynamex between April 15, 2001 and
the date of the certification order, (2) who used their personally owned or leased
vehicles weighing less than 26,000 pounds, and (3) who had returned
questionnaires which the court deemed timely and complete. The proposed class
explicitly excluded, however, drivers for any pay period in which the driver had
provided services to Dynamex either as an employee or subcontractor of another
person or entity or through the driver’s own employees or subcontractors (except
for substitute drivers who provided services during vacation, illness, or other time
11
off). Also excluded were drivers who provided services concurrently for
Dynamex and for another delivery company that did not have a relationship with
Dynamex or for the driver’s own personal delivery customers. Thus, as narrowed
by these exclusions, the class consisted only of individual Dynamex drivers who
had returned complete and timely questionnaires and who personally performed
delivery services for Dynamex but did not employ other drivers or perform
delivery services for another delivery company or for the driver’s own delivery
business. The trial court’s certification order states that 278 drivers returned
questionnaires and that from the questionnaire responses it appears that at least
184 drivers fall within the proposed class.
On May 11, 2011, the trial court, in a 26-page order, granted plaintiffs’
motion for class certification. The validity of that order is at issue in the present
proceeding.
After determining that the proposed class satisfied the prerequisites of
ascertainability, numerosity, typicality, and adequacy of class representatives and
counsel required for class certification, the trial court turned to the question of
commonality — that is, whether common issues predominate over individual
issues. Because of its significance to our subsequent legal analysis, we discuss
this aspect of the trial court’s certification order in some detail.
The trial court began its discussion of the commonality requirement by
observing that “ ‘[t]he ultimate question in every [purported class action] is
whether, given an ascertainable class, the issues which may be jointly tried, when
compared with those requiring separate adjudication, are so numerous or
substantial that the maintenance of a class action would be advantageous to the
judicial process and to the litigants.’ ” The court noted that in examining whether
common issues of law or fact predominate, a court must consider the legal theory
on which plaintiffs’ claim is based and the relevant facts that bear on that legal
12
theory. The court explained that in this case all of plaintiffs’ causes of action rest
on the contention that Dynamex misclassified the drivers as independent
contractors when they should have been classified as employees. Thus, the facts
that are relevant to that legal claim necessarily relate to the appropriate legal
standard or test that is applicable in determining whether a worker should be
considered an employee or an independent contractor.
The court then explained that the parties disagreed as to the proper legal
standard that is applicable in determining whether a worker is an employee or an
independent contractor for purposes of plaintiffs’ claims. Plaintiffs relied on this
court’s then-recent decision in Martinez, supra, 49 Cal.4th 35, maintaining that the
standards or tests for employment set forth in Martinez are applicable in the
present context, and that the standard for determining the employee or independent
contractor question set forth in this court’s decision in Borello, supra, 48 Cal.3d
341 is not the sole applicable standard. Dynamex, by contrast, took the position
that the alternative definitions of “employ” and “employer” discussed in Martinez
are applicable only in determining whether an entity that has a relationship with
the primary employer of an admitted employee should be considered a joint
employer of the employee, and not in deciding whether a worker is properly
classified as an employee or an independent contractor. Dynamex asserted that
even with respect to claims arising out of the obligations imposed by a wage order,
the question of a worker’s status as an employee or independent contractor must
be decided solely by reference to the Borello standard.
In its certification order, the trial court agreed with plaintiffs’ position,
relying on the fact that the Martinez decision “did not indicate that its analysis was
in any way limited to situations involving questions of joint employment.” The
court found that the Martinez decision represents “a redefinition of the
employment relationship under a claim of unpaid wages as follows: ‘To employ,
13
then, under the IWC’s [Industrial Welfare Commission’s] definition, has three
alternative definitions. It means (a) to exercise control over the wages, hours or
working conditions, (b) to suffer or permit to work, or (c) to engage, thereby
creating a common law employment relationship.’ ” (Quoting Martinez, supra,
49 Cal.4th at p. 64.) The trial court concluded that “[t]hese definitions must be
considered when analyzing whether the class members are employees or
independent contractors” and thereafter proceeded to discuss separately each of
the three definitions or standards set forth in Martinez in determining whether
common issues predominate for purposes of class certification.
With regard to the “exercise control over wages, hours or working
conditions” test, the trial court stated that “ ‘control over wages’ means that a
person or entity has the power or authority to negotiate and set an employee’s rate
of pay” and that “[w]hether or not Dynamex had the authority to negotiate each
driver’s rate of pay can be answered by looking at its policies with regard to hiring
drivers. . . . [I]ndividual inquiry is not required to determine whether Dynamex
exercises control over drivers’ wages.”
With regard to the suffer or permit to work test, the trial court stated in full:
“An employee is suffered or permitted to work if the work was performed with the
knowledge of the employer. [Citation.] This includes work that was performed
that the employer knew or should have known about. [Citation.] Again, this is a
matter that can be addressed by looking at Defendant’s policy for entering into
agreement with drivers. Defendant is only liable to those drivers with whom it
entered into an agreement (i.e., knew were providing delivery services to
Dynamex customers). This can be determined through records, and does not
require individual analysis.”
With regard to the common law employment relationship test referred to in
Martinez, the trial court stated that this test refers to the multifactor standard set
14
forth in Borello, supra, 48 Cal.3d 341. The trial court described the Borello test as
involving the principal factor of “ ‘whether the person to whom services is
rendered has the right to control the manner and means of accomplishing the result
desired’ ” as well as the following nine additional factors: “(1) right to discharge
at will, without cause; (2) whether the one performing the services is 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) method of payment, whether by the
time or by the job; (8) whether or not the work is part of the regular business of the
principal; and (9) whether or not the parties believe they are creating the
relationship of employer-employee.” As the trial court observed, Borello
explained that “ ‘the individual factors cannot be applied mechanically as separate
tests; they are intertwined and their weight depends often on particular
combinations.’ ” (Borello, supra, 48 Cal.3d at p. 351.
The trial court then discussed the various Borello factors, beginning with
whether the hiring business has the right to control work details. In analyzing this
factor, the court stated: “A determination of control of the work details must look
to ‘all meaningful aspects of the business relationship.’ [Citation.] For a delivery
service, those aspects include obtaining customer/customer service, prices charged
for delivery, routes, delivery schedules and billing. Plaintiffs contend that these
factors are all controlled by Dynamex because it obtains the customers, maintains
a centralized call system, maintains a package tracking system, sets the prices for
15
its services and customers are billed by Dynamex. This is not necessarily borne
out by the evidence. Defendants’ [supervising officer], Mr. Pople,7 testified that
the drivers solicit new customers. [Citation.] There is also evidence that customer
service is handled by some of the drivers, depending on the customer’s
relationship to that driver. [Citation.] Finally, defendant does not necessarily
control the drivers’ delivery schedules, as a number of drivers state that their only
obligation is to complete the deliveries by the end of the business day. [Citation.]
The degree to which Dynamex controls the details of the work varies according to
different circumstances, including the particular driver or customer that is
involved. Determining whether Dynamex controls the details of the business,
therefore, does not appear susceptible to common proof.”
With regard to the right to discharge factor, the trial court stated: “[T]he
right to discharge at will, without cause, is an important consideration.
Defendant’s [supervising officer] testified that Dynamex maintains the right to
discharge the drivers at will. [Citation.] This does not appear to vary from driver
to driver. So it is a classwide factor, which is particularly relevant to
demonstrating the existence of an employer-employee relationship.”
With regard to the “distinct occupation or business” factor, the trial court
stated: “A distinct business relates to whether the drivers have the opportunity for
profit and loss. [Citation.] Plaintiffs contend that the drivers have no opportunity
for profit or loss because they are charged according to standardized rate tables.
This may be a misrepresentation of defendants’ evidence. Defendant[’s
supervising officer] testified that it tries to standardize the rates paid to on-demand
7
Although the class certification order does not specify Pople’s position, the
record indicates that Pople was Dynamex’s area vice president for the West, with
management and supervisory authority over Dynamex’s operations in California.
16
drivers, however, drivers enter into different compensation arrangements.
[Citations.] The opportunity for profit or loss depends on the nature of the
agreement negotiated between Dynamex and the particular driver. Each
arrangement would have to be reviewed to determine the extent of the driver’s
opportunity for profit and loss.”
With regard to the “who supplies instrumentalities” factor, the court stated:
“Defendant admitted that the drivers had to provide the instrumentalities of their
work and that this was a classwide policy. This factor is subject to common
inquiry.”
With regard to the duration of service factor, the court stated: “Defendants
concede that the drivers are at-will. [This] [f]actor is also subject to common
inquiry.”
With regard to the method of payment factor, the court stated: “Defendants
identify different payment scenarios: (a) percentage of the fee Dynamex charges
its customer for each delivery performed; (b) flat rate per day, regardless of the
number of packages delivered; (c) set amount per package, regardless of the size
or type of package; (d) flat fee to be available to provide delivery service
regardless of whether the Driver’s services are used; or (e) a combination of these
payment types. [Citation.] These factors vary from driver to driver and raise
individualized questions.”
Finally, with regard to the “parties’ belief regarding the nature of
relationship” factor, the court noted that “this factor is given less weight by courts”
and stated “[a]ll the drivers signed agreements stating that they were independent
contractors. The drivers’ belief could reasonably be demonstrated through this
classwide agreement.”
The court then summarized its conclusion with regard to the Borello
standard: “Thus, most of the secondary factors are subject to common proof and
17
do not require individualized inquiry of the class members. But the main factor in
determining whether an employment agreement exists — control of the details —
does require individualized inquiries due to the fact that there is no indication of a
classwide policy that only defendants obtain new customers, only the defendants
provide customer service and create the delivery schedules.”
With respect to the entire question of commonality, however, the trial court
concluded: “Common questions predominate the inquiry into whether an
employment relationship exists between Dynamex and the drivers. The first two
alternative definitions of ‘employer’ can both be demonstrated through common
proof, even if the common law test requires individualized inquiries.”
Having found that common issues predominate, the trial court went on to
conclude that “[a] class action is a superior means of conducting this litigation.”
The court stated in this regard: “Given that there is evidence from Plaintiffs that
common questions predominate the inquiry into [the] employment relationship[,]
managing this as a class action with respect to those claims will be feasible. There
appears to be no litigation by individual class members, indicating that they have
little interest in personally controlling their claims. Finally, consolidating all the
claims before a single court would be desirable since it would allow for consistent
rulings with respect to all the class members’ claims.”
On the basis of its foregoing determinations, the trial court granted
plaintiffs’ motion for class certification.
In December 2012, Dynamex renewed its motion to decertify the class
action that the trial court had certified in May 2011. Dynamex relied upon
intervening Court of Appeal decisions assertedly demonstrating that the trial court
had erred in relying upon the wage order’s alternative definitions of employment,
as set forth in Martinez. The trial court denied the renewed motion to decertify the
class.
18
In June 2013, Dynamex filed a petition for writ of mandate in the Court of
Appeal, challenging the trial court’s denial of its motion to decertify the class. In
response, plaintiffs, while disagreeing with Dynamex’s claim that the trial court
had erred, urged the Court of Appeal to issue an order to show cause and resolve
the issues presented in the writ proceeding. The Court of Appeal issued an order
to show cause in order to determine whether the trial court erred in certifying the
underlying class action under the wage order definitions of “employ” and
“employer” discussed in Martinez.
After briefing and argument, the Court of Appeal denied the petition in part
and granted the petition in part. The appellate court concluded that the trial court
properly relied on the alternative definitions of the employment relationship set
forth in the wage order when assessing those claims in the complaint that fall
within the scope of the applicable wage order, and it denied the writ petition with
respect to those claims. With respect to those claims that fall outside the scope of
the applicable wage order, however, the Court of Appeal concluded that the
Borello standard applied in determining whether a worker is an employee or an
independent contractor, and it granted the writ to permit the trial court to
reevaluate its class certification order in light of this court’s intervening decision
in Ayala, supra, 59 Cal.4th 522, which clarified the proper application of the
Borello standard.
As already noted, Dynamex’s petition for review challenged only the Court
of Appeal’s conclusion that the trial court properly determined that the wage
order’s definitions of “employ” and “employer” may be relied upon in
determining whether a worker is an employee or an independent contractor for
purposes of the obligations imposed by the wage order. We granted the petition
for review to consider that question.
19
II. RELEVANT WAGE ORDER PROVISIONS
We begin with a brief review of the relevant provisions of the wage order
that applies to the transportation industry. (See Cal. Code Regs., tit. 8, § 11090.
In describing its scope, the transportation wage order initially provides in
subdivision 1: “This order shall apply to all persons employed in the
transportation industry, whether paid on a time, piece rate, commission, or other
basis,” except for persons employed in administrative, executive, or professional
capacities, who are exempt from most of the wage order’s provisions. (Cal. Code
Regs., tit. 8, § 11090, subd. 1.)8
Subdivision 2 of the order, which sets forth the definitions of terms as used
in the order, contains the following relevant definitions:
“(D) ‘Employ’ means to engage, suffer, or permit to work.
“(E) ‘Employee’ means any person employed by an employer.
“(F) ‘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
8
The order contains extensive provisions setting forth the requirements that
apply “in determining whether an employee’s duties meet the test to qualify for an
exemption” under the executive, administrative, or professional category. (Cal.
Code Regs., tit. 8, § 11090, subd. 1 (A)(1)-(3).) The professional category
includes persons who are licensed and primarily engaged in the practice of law,
medicine, dentistry, optometry, architecture, engineering, teaching, or accounting,
or another learned or artistic profession. (Id., § 11090, subd. 1 (A)(3)(a)-(g).
The wage order also specifically exempts from its provisions, in whole or
in part, (1) employees directly employed by the state or any political subdivision,
(2) outside salespersons, (3) any person who is the parent, spouse, or child of the
employer, (4) employees who have entered into a collective bargaining agreement
under the federal Railway Labor Act, and (5) any individual participating in a
national service program such as AmeriCorps. (Cal. Code Regs., tit. 8, § 11090,
subd. 1 (B)-(F).
20
or exercises control over the wages, hours, or working conditions of any person.”
(Cal. Code Regs., tit. 8, § 11090, subd. 2(D)-(F).)9
Thereafter, the additional substantive provisions of the wage order that
establish protections for workers or impose obligations on hiring entities relating
to minimum wages, maximum hours, and specified basic working conditions (such
as meal and rest breaks) are, by their terms, made applicable to “employees” or
“employers.” (See, e.g., Cal. Code Regs., tit. 8, § 11090, subds. 3 [Hours and
Days of Work], 4 [Minimum Wages], 7 [Records], 11 [Meal Periods], 12 [Rest
Periods].
Subdivision 2 of the wage order does not contain a definition of the term
“independent contractor,” and the wage order contains no other provision that
otherwise specifically addresses the potential distinction between workers who are
employees covered by the terms of the wage order and workers who are
9
The definitions of “employ,” “employee,” and “employer” that appear in
subdivision 2 of the transportation industry wage order are also included in the
definitions set forth in each of the other 15 wage orders governing other industries
in California, although several of the other industry wage orders include additional
definitions of the term “employee.” (See Cal. Code Regs., tit. 8, § 11010, subd.
2(D)-(F) [Manufacturing Industry]; id., § 11020, subd. 2(D)-(F) [Personal Service
Industry]; id., § 11030, subd. 2(E)-(G) [Canning, Freezing, and Preserving
Industry]; id., § 11040, subd. 2(E)-(H) [Professional, Technical, Clerical,
Mechanical, and Similar Occupations]; id., § 11050, subd. 2(E)-(H) [Public
Housekeeping Industry]; id., § 11060, subd. 2(D)-(F) [Laundry, Linen Supply, Dry
Cleaning, and Dyeing Industry]; id., § 11070, subd. 2(D)-(F) [Mercantile
Industry]; id., § 11080, subd. 2(D)-(F) [Industries Handling Products After
Harvest]; id., § 11100, subd. 2(E)-(G) [Amusement and Recreation Industry];
id., § 11110, subd. 2(E)-(G) [Broadcasting Industry]; id., § 11120, subd. 2(D)-(F
[Motion Picture Industry]; id., § 11130, subd. 2(D)-(F) [Industries Preparing
Agricultural Products for Market, on the Farm]; id., § 11140, subd. 2(C)-(G
[Agricultural Occupations]; id., § 11150, subd. 2(E)-(G) [Household
Occupations]; id., § 11160, subd. 2(G)-(I) [On-Site Occupations].
21
independent contractors who are not entitled to the protections afforded by the
wage order.
III. BACKGROUND OF RELEVANT
CALIFORNIA JUDICIAL DECISIONS
We next summarize the most relevant California judicial decisions,
providing a historical review of the treatment of the employee or independent
contractor distinction under California law.
The difficulty that courts in all jurisdictions have experienced in devising
an acceptable general test or standard that properly distinguishes employees from
independent contractors is well documented. As the United States Supreme Court
observed in Board v. Hearst Publications (1944) 322 U.S. 111, 121: “Few
problems in the law have given greater variety of application and conflict in
results than the cases arising in the borderland between what is clearly an
employer-employee relationship and what is clearly one of independent,
entrepreneurial dealing. This is true within the limited field of determining
vicarious liability in tort. It becomes more so when the field is expanded to
include all of the possible applications of the distinction.” (Fn. omitted.
As the above quotation suggests, at common law the problem of
determining whether a worker should be classified as an employee or an
independent contractor initially arose in the tort context — in deciding whether the
hirer of the worker should be held vicariously liable for an injury that resulted
from the worker’s actions. In the vicarious liability context, the hirer’s right to
supervise and control the details of the worker’s actions was reasonably viewed as
crucial, because “ ‘[t]he extent to which the employer had a right to control [the
details of the service] activities was . . . highly relevant to the question whether the
employer ought to be legally liable for them . . . .’ ” (Borello, supra, 48 Cal.3d
341, 350.) For this reason, the question whether the hirer controlled the details of
22
the worker’s activities became the primary common law standard for determining
whether a worker was considered to be an employee or an independent contractor.
A. Pre-Borello Decisions
Prior to this court’s 1989 decision in Borello, supra, 48 Cal.3d 341,
California decisions generally invoked this common law “control of details”
standard beyond the tort context, even when deciding whether workers should be
considered employees or independent contractors for purposes of the variety of
20th century social welfare legislation that had been enacted for the protection of
employees. Thus, for example, in Tieberg v. Unemployment Ins. App. Bd. (1970
2 Cal.3d 943, 946 (Tieberg), in determining whether a worker was an employee or
independent contractor for purposes of California’s unemployment insurance
legislation, the court stated that “[t]he principal test of an employment relationship
is whether the person to whom service is rendered has the right to control the
manner and means of accomplishing the result desired.” (See also Isenberg v.
California Emp. Stab. Com. (1947) 30 Cal.2d 34, 39 (Isenberg); Perguica v. Ind.
Acc. Com. (1947) 29 Cal.2d 857, 859-861 (Perguica); Empire Star Mines Co. v.
Cal. Emp. Com. (1946) 28 Cal.2d 33, 43 (Empire Star Mines).
In addition to relying upon the control of details test, however, the pre-
Borello decisions listed a number of “secondary” factors that could properly be
considered in determining whether a worker was an employee or an independent
contractor. The decisions declared that a hirer’s right to discharge a worker “at
will, without cause” constitutes “ ‘[s]trong evidence in support of an employment
relationship.’ ” (Tieberg, supra, 2 Cal.3d at p. 949, quoting Empire Star Mines,
supra, 28 Cal.2d at p. 43.) The decisions also pointed to the following additional
factors, derived principally from section 220 of the Restatement Second of
Agency: “(a) whether or not the one performing services is engaged in a distinct
23
occupation or business; (b) 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; (c) the skill required in the particular occupation;
(d) whether the principal or the workman supplies the instrumentalities, tools, and
the place of work for the person doing the work; (e) the length of time for which
the services are to be performed; (f) the method of payment, whether by the time
or by the job; (g) whether or not the work is a part of the regular business of the
principal; and (h) whether or not the parties believe they are creating the
relationship of employer-employee.” (Empire Star Mines, supra, 28 Cal.2d at
pp. 43-44; see also Tieberg, supra, 2 Cal.3d at p. 949; Isenberg, supra, 30 Cal.2d
at p. 39; Perguica, supra, 29 Cal.2d at p. 860.
Applying the control of details test and these secondary factors to the
differing facts presented by each of the cases, this court found the workers in
question to be employees in Tieberg, supra, 2 Cal.3d at pages 949-955 [television
writers] and Isenberg, supra, 30 Cal.2d at pages 39-41 [horse racing jockeys], and
independent contractors in Perguica, supra, 29 Cal.2d at pages 860-862 [lather
hired by farmer to work on newly constructed house] and Empire Star Mines,
supra, 28 Cal.2d at pages 44-46 [lessees of remote mining shaft]. (See also
Tomlin v. California Emp. Com. (1947) 30 Cal.2d 118, 123 [lessees who placed
and serviced vending machines held to be employees]; Twentieth etc. Lites v. Cal.
Dept. Emp. (1946) 28 Cal.2d 56, 57-60 [outside salesmen of advertising signs who
were free to work for competitors held to be employees]; Cal. Emp. Com. v. L.A.
etc. News Corp. (1944) 24 Cal.2d 421, 424-425 [deliverers of advertising circular
held to be employees].
24
B. Borello
In 1989, in Borello, supra, 48 Cal.3d 341, this court addressed the
employee or independent contractor question in an opinion that has come to be
viewed as the seminal California decision on this subject. Because of the
significance of this decision, we review the majority opinion in Borello at length.
The particular controversy in Borello, supra, 48 Cal.3d 341, concerned
whether farmworkers hired by a grower to harvest cucumbers under a written
“sharefarmer” agreement were independent contractors or employees for purposes
of the California workers’ compensation statutes. The grower contended that the
farmworkers were independent contractors under the control of details test because
the workers (1) were free to manage their own labor (the grower did not supervise
the picking at all but compensated the workers based on the amount of cucumbers
that they harvested), (2) shared the profit or loss from the crop, and (3) agreed in
writing that they were not employees.
In rejecting the grower’s contentions, the court in Borello summarized its
conclusion in the introduction of the opinion as follows: “The grower controls the
agricultural operations on its premises from planting to sale of the crops. It simply
chooses to accomplish one integrated step in the production of one such crop by
means of worker incentives rather than direct supervision. It thereby retains all
necessary control over a job which can be done only one way. [¶] Moreover, so
far as the record discloses, the harvesters’ work, though seasonal by nature,
follows the usual line of an employee. In no practical sense are the ‘sharefarmers’
entrepreneurs, operating independent businesses for their own accounts; they and
their families are obvious members of the broad class to which workers’
compensation protection is intended to apply.” (Borello, supra, 48 Cal.3d at
p. 345.) On this basis, the court concluded the workers were employees entitled to
workers’ compensation as a matter of law. (Id. at p. 346.
25
In reaching these conclusions, the legal analysis employed by the Borello
court is of particular significance. The court began by recognizing that “[t]he
distinction between independent contractors and employees arose at common law
to limit one’s vicarious liability for the misconduct of a person rendering service
to him” (Borello, supra, 48 Cal.3d at p. 350), and that it was in this context that
“the ‘control of details’ test became the principal measure of the servant’s status
for common law purposes.” (Ibid.) The court then took note of the prior
California decisions discussed above, which generally utilized the common law
control-of-details standard in determining whether workers were employees or
independent contractors for purposes of social welfare legislation, but which also
identified the numerous additional “secondary” factors listed above that may be
relevant to that determination. (Id. at pp. 350-351.) The court observed that
“ ‘the individual factors cannot be applied mechanically as separate tests; they are
intertwined and their weight depends often on particular combinations.’
[Citation.]” (Id. at p. 351.
Crucially, the court in Borello then went on to explain further that “the
concept of ‘employment’ embodied in the [workers’ compensation act] is not
inherently limited by common law principles. We have acknowledged that the
Act’s definition of the employment relationship must be construed with particular
reference to the ‘history and fundamental purposes’ of the statute. [Citation.]”
(Borello, supra, 48 Cal.3d at p. 351, italics added.) The court observed that “[t]he
common law and statutory purposes of the distinction between ‘employees’ and
‘independent contractors’ are substantially different” (id. at p. 352), that “[f]ederal
courts have long recognized that the distinction between tort policy and social-
legislation policy justifies departures from common law principles when claims
arise that one is excluded as an independent contractor from a statute protecting
‘employees’ ” (ibid.), and that “[a] number of state courts have agreed that in
26
worker’s compensation cases, the employee-independent contractor issue cannot
be decided absent consideration of the remedial statutory purpose.” (Id. at
pp. 352-353.) The court in Borello agreed with this focus on statutory purpose:
“[U]nder the Act, the ‘control-of-work-details’ test for determining whether the
person rendering service to another is an ‘employee’ or an excluded ‘independent
contractor’ must be applied with deference to the purposes of the protective
legislation. The nature of the work, and the overall arrangement between the
parties, must be examined to determine whether they come within the ‘history and
fundamental purposes’ of the statute.” (Id. at pp. 353-354, italics added.
After identifying the various purposes of the workers’ compensation act,10
the court concluded: “The Act intends comprehensive coverage of injuries in
employment. It accomplishes this goal by defining ‘employment’ broadly in terms
of ‘service to an employer’ and by including a general presumption that any
person ‘in service to another’ is a covered ‘employee.’ ” (Borello, supra,
48 Cal.3d at p. 354.) At the same time, the court acknowledged that “[t]he express
exclusion of ‘independent contractors’ [from the workers’ compensation act (see
Lab. Code, §§ 3353, 3357)] is purposeful . . . and has a limited but important
function. It recognizes those situations where the Act’s goals are best served by
imposing the risk of ‘no-fault’ work injuries directly on the provider, rather than
the recipient, of a compensated service. This is obviously the case, for example,
10
The court stated in this regard that the workers’ compensation act “seeks
(1) to ensure that the cost of industrial injuries will be part of the cost of goods
rather than a burden on society, (2) to guarantee prompt, limited compensation for
an employee’s work injuries, regardless of fault, as an inevitable cost of
production, (3) to spur increased industrial safety, and (4) in return, to insulate the
employer from tort liability for his employees’ injuries. [Citations.]” (Borello,
supra, 48 Cal.3d at p. 354.
27
when the provider of service has the primary power over work safety, is best
situated to distribute the risk and cost of injury as an expense of his own business,
and has independently chosen the burdens and benefits of self-employment.”
(Ibid.) The court concluded: “This is the balance to be struck when deciding
whether a worker is an employee or an independent contractor for purposes of the
Act.” (Ibid.
Although the Borello opinion emphasized that resolution of the employee
or independent contractor question must properly proceed in a manner that accords
deference to the history and fundamental purposes of the remedial statute in
question (Borello, supra, 48 Cal.3d at pp. 353-354), the court at the same time
made clear that it was not adopting “detailed new standards for examination of the
issue.” (Id. at p. 354.) The court explained in this regard that “the Restatement
guidelines heretofore approved in our state remain a useful reference. The
standards set forth for contractor’s licensees in [Labor Code] section 2750.5 . . .
are also a helpful means of identifying the employee/contractor distinction.[11]
11
Section 2750.5, which addresses the employee or independent contractor
question in the context of workers who perform services for which a contractor’s
license is required, provides: “There is a rebuttable presumption affecting the
burden of proof that a worker performing services for which a license is required
pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the
Business and Professions Code, or who is performing such services for a person
who is required to obtain such a license[,] is an employee rather than an
independent contractor. Proof of independent contractor status includes
satisfactory proof of these factors:
“(a) That the individual has the right to control and discretion as to the
manner of performance of the contract for services in that the result of the work
and not the means by which it is accomplished is the primary factor bargained for.
“(b) That the individual is customarily engaged in an independently
established business.
“(c) That the individual’s independent contractor status is bona fide and
not a subterfuge to avoid employee status. A bona fide independent contractor
(footnote continued on next page)
28
The relevant considerations may often overlap those pertinent under the common
law. [Citation.] Each service arrangement must be evaluated on its facts, and the
dispositive circumstances may vary from case to case.” (Borello, supra, 48 Cal.3d
at p. 354.
The Borello court also took note of “the six-factor test developed by other
jurisdictions which determine independent contractorship in light of the remedial
purposes of the legislation.” (Borello, supra, 48 Cal.3d at p. 354.)12 The court
(footnote continued from previous page)
status is further evidenced by the presence of cumulative factors such as
substantial investment other than personal services in the business, holding out to
be in business for oneself, bargaining for a contract to complete a specific project
for compensation by project rather than by time, control over the time and place
the work is performed, supplying the tools or instrumentalities used in the work
other than tools and instrumentalities normally and customarily provided by
employees, hiring employees, performing work that is not ordinarily in the course
of the principal’s work, performing work that requires a particular skill, holding a
license pursuant to the Business and Professions Code, the intent by the parties
that the work relationship is of an independent contractor status, or that the
relationship is not severable or terminable at will by the principal but gives rise to
an action for breach of contract.
“In addition to the factors contained in subdivisions (a), (b), and (c), any
person performing any function or activity for which a license is required pursuant
to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and
Professions Code shall hold a valid contractors’ license as a condition of having
independent contractor status.
“For purposes of workers’ compensation law, this presumption is a
supplement to the existing statutory definitions of employee and independent
contractor, and is not intended to lessen the coverage of employees under Division
4 and Division 5.”
12
In addition to the control of details factor, the other five factors included in
the six-factor test are: “(1) the alleged employee’s opportunity for profit or loss
depending on his managerial skill; (2) the alleged employee’s investment in
equipment or materials required for his task, or his employment of helpers;
(3) whether the service rendered requires a special skill; (4) the degree of
permanence of the working relationship; and (5) whether the service rendered is an
(footnote continued on next page)
29
observed the similarity of many of those guidelines to the ones identified in prior
California decisions, and stated that “all [of those factors] are logically pertinent to
the inherently difficult determination whether a provider of service is an employee
or an excluded independent contractor for purposes of workers’ compensation
law.” (Borello, supra, 48 Cal.3d at p. 355.
In sum, the Borello court concluded that in determining whether a worker
should properly be classified as a covered employee or an excluded independent
contractor with deference to the purposes and intended reach of the remedial
statute at issue, it is permissible to consider all of the various factors set forth in
prior California cases, in Labor Code section 2750.5, and in the out-of-state cases
adopting the six-factor test.
The Borello court then turned to the question whether, applying the
appropriate legal analysis, the cucumber harvesters at issue in that case were
properly considered employees or independent contractors. The court concluded
that “[b]y any applicable test” the farmworkers were employees as a matter of
law. (Borello, supra, 48 Cal.3d at p. 355; id. at p. 360.
In reaching this conclusion, the court first rejected the grower’s contention
that the control of details factor weighed against a finding of employment because
the grower had contracted with the workers only for a “specified result” and
retained no interest or control over the details of the harvesters’ actual work.
(Borello, supra, 48 Cal.3d at p. 356.) In explaining its rejection, the court began
by emphasizing that “Borello, whose business is the production and sale of
agricultural crops, exercises ‘pervasive control over the operation as a whole.’
(footnote continued from previous page)
integral part of the alleged employer’s business.” (Borello, supra, 48 Cal.3d at
pp. 354-355.
30
[Citation.]” (Ibid.) The court observed in this regard: “Borello owns and
cultivates the land for its own account. Without any participation by the
sharefarmers, Borello decides to grow cucumbers, obtains a sale price formula
from the only available buyer, plants the crop, and cultivates it throughout most of
its growing cycle. The harvest takes place on Borello’s premises, at a time
determined by the crop’s maturity. During the harvest itself, Borello supplies the
sorting bins and boxes, removes the harvest from the field, transports it to market,
sells it, maintains documentation on the workers’ proceeds, and hands out their
checks. Thus, ‘[a]ll meaningful aspects of this business relationship: price, crop
cultivation, fertilization and insect prevention, payment, [and] right to deal with
buyers . . . are controlled by [Borello].’ [Citation.]” (Ibid., fns. omitted.
Further, the court observed that “contrary to the growers’ assertions, the
cucumber harvest involves simple manual labor which can be performed in only
one correct way. Harvest and plant-care methods can be learned quickly. While
the work requires stamina and patience, it involves no peculiar skill beyond that
expected of any employee. [Citations.] It is the simplicity of the work, not the
harvesters’ superior expertise, which makes detailed supervision and discipline
unnecessary. Diligence and quality control are achieved by the payment system,
essentially a variation of the piecework formula familiar to agricultural
employment.” (Borello, supra, 48 Cal.3d at pp. 356-357.
Thus, with respect to the control of details factor, the court concluded:
“Under these circumstances, Borello retains all necessary control over the harvest
portion of its operations. A business entity may not avoid its statutory obligations
by carving up its production process into minute steps, then asserting it lacks
‘control’ over the exact means by which one such step is performed by the
responsible workers.” (Borello, supra, 48 Cal.3d at p. 357.
31
The Borello court then proceeded to discuss other factors that it found
supported the classification of harvesters as employees. First, the court noted that
“[t]he harvesters form a regular and integrated portion of Borello’s business
operation. Their work, though seasonal in nature, is ‘permanent’ in the
agricultural process. Indeed, Richard Borello testified that he has a permanent
relationship with the individual harvesters, in that many of the migrant families
return year after year. This permanent integration of the workers into the heart of
Borello’s business is a strong indicator that Borello functions as an employer
under the Act. [Citations.]” (Borello, supra, 48 Cal.3d at p. 357.)13
The court next found that “the sharefarmers and their families exhibit no
characteristics which might place them outside the Act’s intended coverage of
employees. They engage in no distinct trade or calling. They do not hold
themselves out in business. They perform typical farm labor for hire wherever
jobs are available. They invest nothing but personal services and hand tools.
They incur no opportunity for ‘profit’ or ‘loss’; like employees hired on a
piecework basis, they are simply paid by the size and grade of cucumbers they
pick. They rely solely on work in the fields for their subsistence and livelihood.
Despite the contract’s admonitions, they have no practical opportunity to insure
themselves or their families against loss of income caused by nontortious work
injuries. If Borello is not their employer, they themselves, and society at large,
thus assume the entire financial burden when such injuries occur. Without doubt,
13
In support of this point, the Borello court cited a passage from a leading
national workers’ compensation law treatise, stating: “The modern tendency is to
find employment when the work being done is an integral part of the regular
business of the employer, and when the worker, relative to the employer, does not
furnish an independent business or professional service.” (1C Larson, The Law of
Workmen’s Compensation (1986) § 45.00, p. 8-174.
32
they are a class of workers to whom the protection of the Act is intended to
extend.” (Borello, supra, 48 Cal.3d at pp. 357-358, fns. omitted.
Last, the Borello court rejected the growers’ claim that the harvesters
should be found to be independent contractors by virtue of their written agreement
with the growers, which stated that they were not employees. The court
explained: “[T]he protections conferred by the Act have a public purpose beyond
the private interests of the workers themselves. Among other things, the statute
represents society’s recognition that if the financial risk of job injuries is not
placed upon the businesses which produce them, it may fall upon the public
treasury. . . . [¶] Moreover, there is no indication that Borello offers its cucumber
harvesters any real choice of terms.” (Borello, supra, 48 Cal.3d at pp. 358-359.
On the basis of the foregoing reasons, the Borello court concluded that, as a
matter of law, the farmworkers were employees for purposes of the workers’
compensation act, and not independent contractors who were excluded from the
coverage of the act. (Borello, supra, 48 Cal.3d at p. 360.
As this lengthy review of the Borello decision demonstrates, although we
have sometimes characterized Borello as embodying the common law test or
standard for distinguishing employees and independent contractors (see, e.g.,
Ayala, supra, 59 Cal.4th at pp. 530-531), it appears more precise to describe
Borello as calling for resolution of the employee or independent contractor
question by focusing on the intended scope and purposes of the particular statutory
provision or provisions at issue. In other words, Borello calls for application of a
statutory purpose standard that considers the control of details and other
potentially relevant factors identified in prior California and out-of-state cases in
order to determine which classification (employee or independent contractor) best
effectuates the underlying legislative intent and objective of the statutory scheme
at issue.
33
The Borello decision repeatedly emphasizes statutory purpose as the
touchstone for deciding whether a particular category of workers should be
considered employees rather than independent contractors for purposes of social
welfare legislation. (See Borello, supra, 48 Cal.3d at pp. 351, 353-354, 357, 358,
359.) This emphasis sets apart the Borello test for distinguishing employees from
independent contractors from the standard embraced in more recent federal cases,
which apply a more traditional common law test for distinguishing between
employees and independent contractors for purposes of most federal statutes.
Early federal cases interpreting a variety of New Deal social welfare enactments
relied heavily on a statutory purpose interpretation in determining who should be
considered an employee for purposes of those enactments. (See, e.g., Labor
Board v. Hearst Publications, supra, 322 U.S. at pp. 124-129; United States v. Silk
(1947) 331 U.S. 704, 711-714.) However, subsequent congressional legislation in
reaction to such decisions has been interpreted to require that federal legislation
generally be construed, in the absence of a more specific statutory standard or
definition of employment, to embody a more traditional common law test for
distinguishing between employees and independent contractors, in which the
control of details factor is given considerable weight. (See, e.g., Nationwide Mut.
Ins. Co. v. Darden (1992) 503 U.S. 318, 324-325 (Darden).) Unlike the federal
experience, however, in the almost 30 years since the Borello decision, the
California Legislature has not exhibited or registered any disagreement with either
the statutory purpose standard adopted by the Borello decision or the application
of that standard in Borello regarding the proper classification of the workers
involved in that case. Instead, in response to the continuing serious problem of
worker misclassification as independent contractors, the California Legislature has
acted to impose substantial civil penalties on those that willfully misclassify, or
34
willfully aid in misclassifying, workers as independent contractors. (See § 226.8,
enacted by Stats. 2011, ch. 706, § 1; § 2753, enacted by Stats. 2011, ch. 706, § 2.
C. Martinez
We next summarize this court’s decision in Martinez, supra, 49 Cal.4th 35.
Although Martinez did not directly involve the issue of whether the workers in
question were employees or independent contractors, it did address the meaning of
the terms “employ” and “employer” as used in California wage orders, and the
proper scope of the Martinez decision lies at the heart of the issue before our court
in the present case.
In Martinez, supra, 49 Cal.4th 35, the strawberry grower Munoz & Sons
(Munoz) directly employed seasonal agricultural workers but failed to pay the
workers the required minimum or overtime wages they had earned. Thereafter,
the workers filed an action under section 1194 seeking to recover such wages not
only from Munoz, but also from several produce merchants to whom Munoz
regularly sold its strawberries. The workers contended that in an action for unpaid
minimum or overtime wages under section 1194, the alternative definitions of
“employ” and “employer” set forth in the applicable Industrial Welfare
Commission wage order — there, Wage Order No. 14 — constituted the
applicable standards for determining who was a potentially liable employer. They
further contended that under the wage order definitions, the produce merchants, as
well as Munoz, each should properly be considered the workers’ employer who
was jointly liable for the workers’ unpaid wages.
In discussing this question, the court in Martinez recognized at the outset
that the workers’ attempt in that case to recover unpaid wages “from persons who
contracted with their ostensible employer raises issues that have long avoided the
attention of California’s courts.” (Martinez, supra, 49 Cal.4th at p. 50.) The court
35
noted that although section 1194 derived from legislation enacted in 1913 as part
of the act that created the Industrial Welfare Commission (hereafter IWC), this
court had considered how employment should be defined in actions under section
1194 in only one earlier case. The court further observed that although the phrases
used in the applicable IWC wage order to define “employ” and “employer” dated
from 1916 and 1947, “the courts of this state have never considered their meaning
or scope.” (Id. at p. 50.
In addressing these largely unexplored issues, the Martinez court turned
initially to the language and legislative history of section 1194. The court noted
that section 1194, by its terms, does not define the employment relationship or
identify the entities who are liable under the statute for unpaid wages. After an
extensive review of the statute’s legislative history, however, the court concluded
that “[a]n examination of section 1194 in its statutory and historical context shows
unmistakably that the Legislature intended the IWC’s wage orders to define the
employment relationship in actions under the statute.” (Martinez, supra, 49
Cal.4th at p. 52; see id. at pp. 53-57.
The court in Martinez then considered how the IWC, utilizing its broad
legislative authority (see Cal. Const., art. XIV, § 1; Industrial Welf. Com., supra,
27 Cal.3d at p. 701), has defined the scope of the employment relationship through
the provisions of its wage orders.14
14
As explained in Murphy v. Kenneth Cole Productions, Inc. (2007) 40
Cal.4th 1094, 1102, footnote 4: “The Industrial Welfare Commission (IWC) is the
state agency empowered to formulate wage orders governing employment in
California. [Citation.] The Legislature defunded the IWC in 2004, however its
wage orders remain in effect. [Citation.]” The Legislature, of course, retains the
authority to re-fund the IWC or to revise any provisions of the current wage orders
through the enactment of new legislation.
36
The court first observed that, beginning in 1916, the IWC’s wage orders
encompassed, as employers, those entities who “employ or suffer or permit”
persons to work for them. (Martinez, supra, 49 Cal.4th at p. 57, italics omitted.
The court noted that the “suffer or permit” language, now embodied in the
definition of “employ” in the wage order at issue in Martinez (as well as in the
transportation wage order at issue in this case and in all other wage orders),
derived from statutes regulating and prohibiting child labor that were in use
throughout the country in 1916, and which were based on model child labor laws
published between 1904 and 1912. (Id. at pp. 57-58.) The Martinez court
observed that the suffer or permit to work language had been interpreted to impose
liability upon an entity “even when no common law employment relationship
existed between the minor and the defendant, based on the defendant’s failure to
exercise reasonable care to prevent child labor from occurring.” (Id. at p. 58.
The court explained: “Not requiring a common law master and servant
relationship, the widely used ‘employ, suffer or permit’ standard reached irregular
working arrangements the proprietor of a business might otherwise disavow with
impunity. Courts applying such statutes before 1916 had imposed liability, for
example, on a manufacturer for industrial injuries suffered by a boy hired by his
father to oil machinery [citation], and on a mining company for injuries to a boy
paid by coal miners to carry water [citation].” (Ibid.
The Martinez court then went on to observe that, in addition to defining
“employ” to mean suffer or permit to work, all IWC wage orders also include a
separate provision defining “employer” to include a person or entity who
“employs or exercises control over the wages, hours, or working conditions of any
person.” (Martinez, supra, 49 Cal.4th at p. 59.) With respect to this language, the
court stated: “Beginning with the word ‘employs,’ the definition logically
incorporates the separate definition of ‘employ’ (i.e., ‘to engage, suffer, or permit
37
to work’) as one alternative. The remainder of the definition — ‘exercises control
over . . . wages, hours, or working conditions” — has no clearly identified,
precisely literal statutory or common law antecedent.” (Ibid.) The court
nonetheless made three observations about this language. First, the court noted
that because the IWC’s delegated authority has always been over wages, hours,
and working conditions, it made sense to bring within the IWC’s regulatory
jurisdiction an entity that controls any one of these aspects of the employment
relationship. (Ibid.) Second, the court explained that because this language,
“phrased as it is in the alternative (i.e., ‘wages, hours, or working conditions’), the
language of the IWC’s ‘employer’ definition has the obvious utility of reaching
situations in which multiple entities control different aspects of the employment
relationship, as when one entity, which hires and pays workers, places them with
other entities that supervise the work.” (Ibid.) Third, the court observed that “the
IWC’s ‘employer’ definition belongs to a set of revisions intended to distinguish
state wage law from its federal analogue, the FLSA [Fair Labor Standards Act]”
(ibid.), providing workers with greater protection than that afforded to workers
under the FLSA as limited by Congress under the Portal-to-Portal Act of 1947.
(Id. at pp. 59-60.
Finally, the court in Martinez held that the IWC wage orders, by defining
“employ” to mean “engage” to work (as well as to “suffer or permit” to work),
incorporate the common law definition of employment as an alternative definition.
The court explained in this regard: “The verbs ‘to suffer’ and ‘to permit,’ as we
have seen, are terms of art in employment law. [Citation.] In contrast, the verb ‘to
engage’ has no other apparent meaning in the present context than its plain,
ordinary sense of ‘to employ,’ that is, to create a common law employment
relationship. This conclusion makes sense because the IWC, even while extending
its regulatory protection to workers whose employment status the common law did
38
not recognize, could not have intended to withhold protection from the regularly
hired employees who undoubtedly comprise the vast majority of the state’s
workforce.” (Martinez, supra, 49 Cal.4th at p. 64, fn. omitted.
The Martinez court summarized its conclusion on this point as follows: “To
employ, then, under the IWC’s definition, has three alternative definitions. It
means: (a) to exercise control over the wages, hours or working conditions, or
(b) to suffer or permit to work, or (c) to engage, thereby creating a common law
employment relationship.” (Martinez, supra, 49 Cal.4th at p. 64.
Moreover, the court in Martinez thereafter took pains to emphasize the
importance of not limiting the meaning and scope of “employment” to only the
common law definition for purposes of the IWC’s wage orders, declaring that
“ignoring the rest of the IWC’s broad regulatory definition would substantially
impair the commission’s authority and the effectiveness of its wage orders. The
commission . . . has the power to adopt rules to make the minimum wage
‘effective’ by ‘prevent[ing] evasion and subterfuge . . . .’ [Citation.] . . .
[L]anguage consistently used by the IWC to define the employment relationship,
beginning with its first wage order in 1916 (‘suffer, or permit’), was commonly
understood to reach irregular working arrangements that fell outside the common
law, having been drawn from statutes governing child labor and occasionally that
of women. [Citation.] . . . To adopt such a definitional provision . . . lay squarely
within the IWC’s power, as the provision has ‘a direct relation to minimum wages’
[citation] and is reasonably necessary to effectuate the purposes of the statute
[citations]. For a court to refuse to enforce such a provision in a presumptively
valid wage order [citation] simply because it differs from the common law would
thus endanger the commission’s ability to achieve its statutory purposes. [¶] One
cannot overstate the impact of such a holding on the IWC’s powers. Were we to
define employment exclusively according to the common law in civil actions for
39
unpaid wages we would render the commission’s definitions effectively
meaningless.” (Martinez, supra, 49 Cal.4th at p. 65, fn. omitted.
The court in Martinez thus concluded, first, that the definitions of the
employment relationship contained in an applicable wage order apply in a civil
action brought by a worker under section 1194, and, second, that the applicable
wage order sets forth three alternative definitions of employment for purposes of
the wage order: “(a) to exercise control over the wages, hours or working
conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a
common law employment relationship.” (Martinez, supra, 49 Cal.4th at p. 64.
The court then went on to determine whether, under the wage order’s alternative
definitions, the produce merchants in that case should properly be considered the
employer of the agricultural workers and thus could be held liable for the workers’
unpaid minimum or overtime wages. (Id. at pp. 68-77.
With respect to each of the produce merchants, the court in Martinez
ultimately concluded that the merchants could not properly be found to be an
employer under any of the wage order’s alternative definitions.
First, in discussing the scope of the suffer or permit to work standard, the
court stated generally: “We see no reason to refrain from giving the IWC’s
definition of ‘employ’ its historical meaning. That meaning was well established
when the IWC first used the phrase ‘suffer, or permit’ to define employment, and
no reason exists to believe the IWC intended another. Furthermore, the historical
meaning continues to be highly relevant today: A proprietor who knows that
persons are working in his or her business without having been formally hired, or
while being paid less than the minimum wage, clearly suffers or permits that work
by failing to prevent it, while having the power to do so.” (Martinez, supra, 49
Cal.4th at p. 69, italics added.) Nonetheless, the court rejected the workers’
contention that because the merchants knew the agricultural workers were working
40
for Munoz and because their work benefitted the produce merchants, the
merchants suffered or permitted the workers to work within the meaning of the
wage order. The court explained that the fact the merchants may have benefitted
from the workers’ labor, “in the sense that any purchaser of commodities
benefits,” was not sufficient to incur liability for having suffered or permitted
them to work. (Id. at p. 69.) The workers’ claim failed because they were not
working in the produce merchants’ businesses and the merchants lacked the power
or authority to prevent the workers from working for Munoz. (Id. at p. 70.
Second, applying the standard that looks to the exercise of control over
wages, hours or working conditions, the court rejected the argument that the
produce merchants, through their contractual relationships with Munoz, dominated
the Munoz business financially, and thus could properly be found to exercise
indirect control over the wages and hours of Munoz’s employees. (Martinez,
supra, 49 Cal.4th at pp. 71-77.) The court found that contrary to the implicit
premise of the workers’ claim, the record indicated that the Munoz business was
not a sham arrangement created by the produce merchants, but rather constituted
“a single, integrated business operation, growing and harvesting strawberries for
several unrelated merchants and combining revenue from all sources with a
personal investment, in the hope of earning a profit at the end of the season.” (Id.
at p. 72.) Further, the court additionally determined that “Munoz alone, with the
assistance of his foremen, hired and fired [the workers], trained and supervised
them, determined their rate and manner of pay (hourly or piece rate), and set their
hours, telling them when and where to report to work and when to take breaks.”
(Ibid.) Although the workers pointed to several occasions in which field
representatives of the produce merchants had spoken to individual workers about
the manner in which strawberries were to be packed (id. at pp. 74-77), the court
concluded that the record did not indicate “the field representatives ever
41
supervised or exercised control over [Munoz’s] employees” (id. at p. 76) or that
the merchants had the right to exercise such control under their contracts with
Munoz. (Id. at p. 77.
With respect to the third alternative definition of an employment
relationship, the common law standard, the Martinez court observed early in the
decision that the workers disclaimed any argument that the produce merchants
were their employers under common law. (Martinez, supra, 49 Cal.4th at p. 52,
fn. 17.
In sum, although the Martinez court concluded that the wage order
definitions of the employment relationship apply in civil actions for unpaid
minimum or overtime wages under section 1194, the court ultimately affirmed the
trial court and Court of Appeal decisions in that case rejecting the workers’ claims
that the defendant produce merchants were the workers’ employers for purposes of
section 1194. (Martinez, supra, 49 Cal.4th at p. 78.
D. Ayala
Four years after the decision in Martinez, supra, 49 Cal.4th 35, we rendered
the decision in Ayala, supra, 59 Cal.4th 522. In Ayala, a wage and hour action
had been filed on behalf of newspaper carriers who had been hired by the
Antelope Valley Press (Antelope Valley) to deliver its newspaper. The carriers
alleged that Antelope Valley had misclassified them as independent contractors
when they should have been treated as employees. The trial court in Ayala had
denied the plaintiffs’ motion to certify the action as a class action on the ground
that under the Borello test — which, at the trial level, both parties agreed was the
applicable standard — common issues did not predominate because application of
the Borello standard “would require ‘heavily individualized inquiries’ into
Antelope Valley’s control over the carriers’ work.” (59 Cal.4th at p. 529.
42
In reviewing the trial court’s ruling in Ayala, this court noted that “[i]n
deciding whether plaintiffs were employees or independent contractors, the trial
court and Court of Appeal applied the common law test, discussed most recently at
length in Borello, supra, 48 Cal.3d 341.” (Ayala, supra, 59 Cal.4th at pp. 530-
531.) We pointed out that while the Ayala case was pending in our court “[w]e
solicited supplemental briefing concerning the possible relevance of the additional
tests for employee status in IWC wage order No. 1-2001, subdivision 2(D)-(F).”
(Id. at p. 531 [citing, inter alia, Martinez, supra, 49 Cal.4th 35].) The court in
Ayala explained that “[i]n light of the supplemental briefing, and because plaintiffs
proceeded below on the sole basis that they are employees under the common law,
we now conclude we may resolve the case by applying the common law test for
employment, without considering these other tests. [Citation.] Accordingly, we
leave for another day the question of what application, if any, the wage order tests
for employee status might have to wage and hour claims such as these, and
confine ourselves to considering whether plaintiffs’ theory that they are employees
under the common law definition is one susceptible of proof on a classwide basis.”
(Id. at p. 531; see also id. at p. 532, fn. 3.)15
15
In resolving the case under the Borello standard applied by the trial court,
the court in Ayala concluded that the trial court had erred in failing to focus upon
potential differences, if any, in Antelope Valley’s right to exercise control over the
carriers, rather than relying on variations in how that right was actually exercised
by Antelope Valley, and the court remanded the case for reconsideration by the
trial court under the correct legal standard. (Ayala, supra, 59 Cal.4th at pp. 532-
540.) In the course of its discussion, the court in Ayala explained how the class
action “predominance” requirement should generally be applied in this context,
observing that under the Borello standard “[o]nce common and individual factors
have been identified, the predominance inquiry calls for weighing costs and
benefits. . . . [¶] . . . [T]hat weighing must be conducted with an eye to the reality
that the considerations in the multifactor test are not of uniform significance.
Some, such as the hirer’s right to fire at will and the basic level of skill called for
(footnote continued on next page)
43
In the present case, we take up the issue we did not reach in Ayala, namely
whether in a wage and hour class action alleging that the plaintiffs have been
misclassified as independent contractors when they should have been classified as
employees, a class may be certified based on the wage order definitions of
“employ” and “employer” as construed in Martinez, supra, 49 Cal.4th 35, or,
instead, whether the test for distinguishing between employees and independent
contractors discussed in Borello, supra, 48 Cal.3d 341 is the only standard that
applies in this setting.
IV. WITH RESPECT TO THE CLAIMS RESTING ON
DYNAMEX’S ALLEGED FAILURE TO FULFILL OBLIGATIONS
IMPOSED BY THE APPLICABLE WAGE ORDER, DID THE TRIAL COURT
PROPERLY DETERMINE CLASS CERTIFICATION BASED ON THE
DEFINITIONS OF “EMPLOY” AND “EMPLOYER” IN THE WAGE ORDER?
As noted, the drivers’ general contention in this case is that Dynamex
misclassified its drivers as independent contractors when they should have been
classified as employees and as a result violated its obligations under the applicable
wage order and a variety of statutes. Most of the causes of action in the complaint
rest on Dynamex’s alleged failure to fulfill obligations directly set forth in the
wage order — for example, the alleged failure to pay overtime wages or to provide
accurate wage statements. Other causes of action include Dynamex’s alleged
failure to comply with statutory obligations that do not derive directly from the
(footnote continued from previous page)
by the job, are often of inordinate importance. [Citations.] Others, such as the
‘ownership of the instrumentalities and tools’ of the job, may be of ‘only
evidential value,’ relevant to support an inference that the hiree is, or is not,
subject to the hirer’s direction and control. [Citation.] Moreover, the significance
of any one factor and its role in the overall calculus may vary from case to case
depending on the nature of the work and the evidence. (Borello, supra, 48 Cal.3d
at p. 354.)” (Ayala, supra, 59 Cal.4th at p. 539.
44
applicable wage order — for example, the obligation to reimburse employees for
business-related transportation expenses such as fuel or tolls. (See § 2802.) As
already explained, Dynamex’s petition for review challenged only the Court of
Appeal’s conclusion that the trial court, in ruling on the class certification motion,
did not err in relying upon the definitions of the employment relationship
contained in the wage order with regard to those claims that derive directly from
the obligations imposed by the wage order. Accordingly, we address only that
issue.16
As discussed above, in Martinez, supra, 49 Cal.4th 35, this court clearly
held that the IWC has the authority, in promulgating its wage orders, to define the
standard for determining when an entity is to be considered an employer for
purposes of the applicable wage order. (Id. at pp. 60-62.) After examining the
definitions of “employ” and “employer” set forth in the applicable wage order, the
court in Martinez held that the wage order embodied three alternative definitions
of “employ”: “(a) to exercise control over the wages, hours or working conditions,
or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law
employment relationship.” (Id. at p. 64.) The court in Martinez went on to
consider each of these alternative definitions or standards in determining whether
16
A trial court order denying a motion to decertify a class is generally subject
to review pursuant to an abuse of discretion standard. (See, e.g., Duran v. U.S.
Bank Nat. Assn. (2014) 59 Cal.4th 1, 49; Sav-on Drug Stores, Inc. v . Superior
Court (2004) 34 Cal.4th 319, 326; Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429,
435-436.) The question of what legal standard or test applies in determining
whether a worker is an employee or, instead, an independent contractor for
purposes of the obligations imposed by a wage order is, however, a question of
law (cf., e.g., Martinez, supra, 49 Cal.4th at pp. 57-60 ), and if the trial court
applied the wrong legal standard and that error affected the propriety of its class
certification ruling, the order denying decertification would constitute an abuse of
discretion. (See, e.g., Duran v. U.S. Bank Nat. Assn., supra, 59 Cal.4th at p. 49.
45
the produce merchants in that case should properly be considered the employers of
the agricultural workers for purposes of the applicable wage order. We ultimately
concluded that the produce merchants were not employers of the workers under
any of the wage order’s definitions.
In the present case, Dynamex argues that two of the three alternative
definitions identified in Martinez — the exercise control over wages hours or
working conditions standard and the suffer or permit to work standard — are
applicable only in determining whether an entity is a joint employer of the
workers. In other words, Dynamex maintains that whether a business exercised
control over the workers’ wages, hours, or working conditions, or suffered or
permitted the workers to work are relevant inquiries only in circumstances in
which the question at issue is whether, when workers are “admitted employees” of
one business (the primary employer), a business entity that has a relationship to
the primary employer should also be considered an employer of the workers such
that it is jointly responsible for the obligations imposed by the wage order.
According to Dynamex, neither of these wage order definitions of “employ” and
“employer” applies when the question to be answered is whether a worker is
properly considered an employee who is covered by the wage order or, rather, an
independent contractor who is excluded from the wage order’s protections. The
latter inquiry, Dynamex asserts, is governed solely by the third definition
identified in Martinez, the Borello standard.
For the reasons discussed below, we conclude that there is no need in this
case to determine whether the exercise control over wages, hours or working
conditions definition is intended to apply outside the joint employer context,
because we conclude that the suffer or permit to work standard properly applies to
the question whether a worker should be considered an employee or, instead, an
independent contractor, and that under the suffer or permit to work standard, the
46
trial court class certification order at issue here should be upheld. (See Brinker
Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1032 [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].) As explained below, the suffer or permit to work standard has a long
and well-established history, and in other jurisdictions has regularly been held
applicable to the question whether a worker should be considered an employee or
an independent contractor for the purposes of social welfare legislation embodying
that standard. Accordingly, we confine the discussion of Dynamex’s argument to
an analysis of the scope and meaning of the suffer or permit to work standard in
California wage orders.
A. Does the Suffer or Permit to Work Definition Apply to the
Employee/Independent Contractor Distinction?
To begin with, although Dynamex contends that the suffer or permit to
work standard should be understood as applicable only to the joint employer
question like that involved in the Martinez decision itself, there is nothing in the
language of the wage order indicating that the standard is so limited. As Martinez
discussed, the suffer or permit language is one of the wage order’s alternative
definitions of the term “employ.” (Martinez, supra, 49 Cal.4th at p. 64.) On its
face, the standard would appear relevant to a determination whether, for purposes
of the wage order, a worker should be considered an individual who is
“employ[ed]” by an “employer” (and therefore an employee covered by the wage
order) or, instead, an independent contractor who has been hired, but not
“employed,” by the hiring business (and thus not covered by the wage order).
Moreover, the discussion of the origin and history of the suffer or permit to
work language in Martinez itself makes it quite clear that this standard was
intended to apply beyond the joint employer context. As Martinez explains, at the
47
time the suffer or permit language was initially adopted as part of a wage order in
1916, such language “was already in use throughout the country in statutes
regulating and prohibiting child labor (and occasionally that of women), having
been recommended for that purpose in several model child labor laws published
between 1904 and 1912 [citation].” (Martinez, supra, 49 Cal.4th at pp. 57-58, fn.
omitted.) Martinez observed that “[n]ot requiring a common law master and
servant relationship, the widely used ‘employ, suffer or permit’ standard reached
irregular working arrangements the proprietor of a business might otherwise
disavow with impunity. Courts applying such statutes before 1916 had imposed
liability, for example, on a manufacturer for industrial injuries suffered by a boy
hired by his father to oil machinery [citation], and on a mining company for
injuries to a boy paid by coal miners to carry water [citation].” (Id. at p. 58.
Thus, Martinez demonstrates that the suffer or permit to work standard does not
apply only to the joint employer context, but also can apply to the question
whether, for purposes of the obligations imposed by a wage order, a worker who is
not an “admitted employee” of a distinct primary employer should nonetheless be
considered an employee of an entity that has “suffered or permitted” the worker to
work in its business.17
17
Although the suffer or permit to work standard is not limited to the joint
employer context, there is no question that the standard was intended to cover a
variety of entities that have a relationship with a worker’s primary employer, for
example, a larger business that contracts out some of its operations to a
subcontractor but retains substantial control over the work. (See generally
Goldstein et al., Enforcing Fair Labor Standards in the Modern American
Sweatshop: Rediscovering the Statutory Definition of Employment (1999) 46
UCLA L.Rev. 983, 1055-1066 (Enforcing Fair Labor Standards).) It is important
to understand, however, that even when a larger business is found to be a joint
employer of the subcontractor’s employees under the suffer or permit to work
standard, this result does not mean that the larger business is prohibited from
(footnote continued on next page)
48
Dynamex contends, however, that even if the suffer or permit to work
standard can apply outside the joint employer context to circumstances like those
in the early child worker cases cited in Martinez, that standard should not be
construed as applicable to the question whether an individual worker is an
employee or, instead, an independent contractor. Dynamex proffers a number of
arguments in support of this contention.
First, Dynamex points out that the suffer or permit to work language has
been a part of California wage orders for over a century and that since the Borello
decision was handed down in 1989, California decisions have applied the Borello
standard in distinguishing employees from independent contractors in many
contexts, including in cases arising under California’s wage orders. (See, e.g., Ali
v. U.S.A. Cab Ltd. (2009) 176 Cal.App.4th 1333, 1347; Estrada v. FedEx Ground
Package System, Inc. (2007) 154 Cal.App.4th 1, 11-13 (Estrada).) Dynamex
asserts that there is no reason to interpret the Martinez decision as altering this
situation. In further support of this position, Dynamex refers to several sections of
the Division of Labor Standards Enforcement (DLSE) Enforcement Policies and
Interpretations Manual that discuss the employee/independent contractor
distinction and that indicate that the DLSE has in the past applied the Borello
standard in determining whether a worker is an employee or independent
contractor for purposes of a wage order. (See DLSE, 2002 Update of the DLSE
(footnote continued from previous page)
entering into a relationship with the subcontractor or from obtaining benefits that
may result from utilizing the services of a separate business entity. Even when the
subcontractor’s employees can hold the larger business responsible for violations
of the wage order under the suffer or permit to work standard, the larger business,
so long as authorized by contract, can seek reimbursement for any such liability
from the subcontractor. (See id. at pp. 1144-1145.
49
Enforcement Policies and Interpretations Manual (rev. 2017), §§ 2.2, 2.2.1, 28,
available at <www.dir.ca.gov/dlse/DLSEManual/dlse_enfcmanual.pdf> [as of
Apr. 30, 2018] (DLSE Manual).18 Dynamex emphasizes that the relevant sections
of the DLSE Manual dealing with independent contractors make no mention of the
suffer or permit to work standard.
As our decision in Martinez itself observed, however, prior to Martinez no
California decision had discussed the wage orders’ suffer or permit to work
language in any context. (Martinez, supra, 49 Cal.4th at p. 50.) In Martinez, we
applied the suffer or permit to work standard in determining whether the produce
merchants should be considered joint employers of the farmworkers even though
that test had not been applied in prior California decisions. (Id. at pp. 69-71.
Thus, the lack of prior case support does not distinguish the employee/independent
contractor context from the joint employer context at issue in Martinez.
With respect to the effect of the DLSE Manual, the parties and supporting
amici curiae have not cited any DLSE decision since Martinez that has considered
whether the suffer or permit to work standard should apply in resolving the
employee/independent contractor question. Indeed, in a supplemental brief filed
in response to a question posed by this court, the DLSE itself notes that the
sections in the DLSE Manual that discuss independent contractors have not been
revised since the decision in Martinez, and further states that “[t]he lack of any
mention of Martinez in Chapter 28 of the Manual [the section directly discussing
the employee/independent contractor distinction] . . . should not be interpreted as
an expression of a view on the underlying question presented for review in this
18
The DLSE is the administrative agency authorized to enforce California’s
labor laws, including applicable wage orders. (See, e.g., Kilby v. CVS Pharmacy,
Inc. (2016) 63 Cal.4th 1, 13.
50
case.” Moreover, our past cases explain that because the DLSE Manual was not
adopted pursuant to the procedures embodied in the California Administrative
Procedure Act, its provisions are not entitled to the deference ordinarily accorded
to formal administrative regulations, and that this court must independently
determine the meaning and scope of the provisions of an applicable wage order.
(See, e.g., Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542,
554-561; Kilby v. CVS Pharmacy, Inc., supra, 63 Cal.4th at p. 13; Peabody v.
Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 669-670; Martinez, supra,
49 Cal.4th at p. 63, fn. 34; cf. Tidewater v. Bradshaw (1996) 14 Cal.4th 557, 569-
570.) Accordingly, we conclude that Dynamex’s reliance on the DLSE Manual is
not persuasive.
Second, Dynamex asserts that the Martinez decision itself indicates that the
Borello standard, rather than the suffer or permit to work standard, applies in the
wage order context to distinguish independent contractors from employees.
Dynamex points to a passage in Martinez in which the court relied on a number of
factors discussed in Borello in concluding that Munoz, the grower who employed
the individual agricultural workers, was an independent contractor rather than an
employee of the produce merchants. (Martinez, supra, 49 Cal.4th at p. 73.) The
grower in Martinez, however, operated a distinct business with its own employees
and was not an individual worker like the delivery drivers at issue in the present
case. In any event, the passage in question in Martinez makes it quite clear that
the court was not deciding whether the Borello standard was the only applicable
standard for determining whether a worker is an employee or independent
contractor for purposes of an applicable wage order. (Id. at p. 73 [“Assuming the
decision in S.G. Borello, supra, 48 Cal.3d 41, has any relevance to wage claims,
a point we do not decide, the case does not advance plaintiffs’ argument” (italics
added)].
51
Third, Dynamex maintains that a number of Court of Appeal opinions
decided after Martinez demonstrate that the Borello standard continues to control
the determination of whether a worker is an employee or independent contractor
for purposes of an applicable wage order. (See, e.g., Arnold v. Mutual of Omaha
Ins. Co. (2011) 202 Cal.App.4th 580, 586-588; Arzate v. Bridge Terminal
Transport, Inc. (2011) 192 Cal.App.4th 419, 425-427.) None of the Court of
Appeal decisions relied upon by Dynamex, however, refers to or analyzes the
potential application of the suffer or permit to work standard to the employee or
independent contractor question. By contrast, the Court of Appeal decision in the
present case cited and discussed a number of post-Martinez Court of Appeal
decisions recognizing that the definitions of “employ” and “employer” discussed
in Martinez now govern the resolution of claims arising out of California wage
orders, including whether a worker is an employee or independent contractor.
(See, e.g., Guerrero v. Superior Court (2013) 213 Cal.App.4th 912, 945-952;
Bradley v. Networkers Internat. LLC (2012) 211 Cal.App.4th 1129, 1146-1147;
Futrell v. Payday California, Inc. (2010) 190 Cal.App.4th 1419, 1429.) In short,
California decisions since Martinez do not support Dynamex’s contention that the
suffer or permit to work standard is not applicable to the employee/independent
contractor determination.
Fourth, Dynamex contends that even if there is nothing in Martinez or
subsequent Court of Appeal decisions that renders the suffer or permit to work
standard inapplicable to the employee or independent contractor question, it would
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.
The applicable wage order, however, purposefully adopts its own definition of
“employ” to govern the application of the wage order’s obligations that is
52
intentionally broader than the standard of employment that would otherwise apply,
and as our decision in Martinez emphasized, we must respect the IWC’s
legislative authority to promulgate the test that will govern the scope of the wage
order. (Martinez, supra, 49 Cal.4th at pp. 60-62.
In its reply brief, Dynamex advances a variant of this contention,
maintaining that a “two-test” approach to the employee or independent contractor
distinction would invariably lead to inconsistent determinations for disparate
claims under different labor statutes brought by the same individual. Any
potential inconsistency, however, arises from the IWC’s determination that it is
appropriate to apply a distinct and particularly expansive definition of employment
regarding obligations imposed by a wage order. Under Martinez, supra,
49 Cal.4th 35, the potential inconsistent results to which Dynamex objects could
equally arise in the joint employer context: a third party that has a relationship to a
worker’s primary employer could be found to be a joint employer for purposes of
the obligations imposed by a wage order, even when the third party may not
constitute a joint employer for other purposes.
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. (Accord People v. Superior Court
(Sahlolbei) (2017) 3 Cal.5th 230, 235-245.) Further, because the applicable
federal wage and hour law — the Fair Labor Standards Act (FLSA) (29 U.S.C.
§ 201 et seq.) — contains its own standard for resolving the employee or
independent contractor issue (see post, pp. 56-58, fn. 20, & pp. 61-62), an
employer must, in any event, take into account a variety of applicable standards.
Indeed, the federal context demonstrates that California is not alone is adopting a
53
distinct standard that provides broader coverage of workers with regard to the very
fundamental protections afforded by wage and hour laws and wage orders; like
California wage orders, the FLSA contains a broader standard of employment than
that generally applicable in other, non-wage-and-hour federal contexts. (See, e.g.,
Darden, supra, 503 U.S. at p. 326.
Finally, and perhaps most significantly, Dynamex argues that the suffer or
permit to work standard cannot serve as the test for distinguishing employees from
independent contractors because a literal application of that standard would
characterize all individual workers who directly provide services to a business as
employees. A business that hires any individual to provide services to it can
always be said to knowingly “suffer or permit” such an individual to work for the
business. A literal application of the suffer or permit to work standard, therefore,
would bring within its reach even those individuals hired by a business —
including unquestionably independent plumbers, electricians, architects, sole
practitioner attorneys, and the like — who provide only occasional services
unrelated to a company’s primary line of business and who have traditionally been
viewed as working in their own independent business. For this reason, Dynamex
maintains that the Borello standard is the only approach that can provide a realistic
and practical test for distinguishing employees from independent contractors.
It is true that, when applied literally and without consideration of its history
and purposes in the context of California’s wage orders, the suffer or permit to
work language, standing alone, does not distinguish between, on the one hand,
those individual workers who are properly considered employees for purposes of
the wage order and, on the other hand, the type of traditional independent
contractors described above, like independent plumbers and electricians, who
could not reasonably have been intended by the wage order to be treated as
employees of the hiring business. As other jurisdictions have recognized,
54
however, that the literal language of the suffer or permit to work standard does not
itself resolve the question whether a worker is properly considered a covered
employee rather than an excluded independent contractor does not mean that the
suffer or permit to work standard has no substantial bearing on the determination
whether an individual worker is properly considered an employee or independent
contractor for purposes of a wage and hour statute or regulation. (See, e.g.,
Rutherford Food Corp. v. McComb (1947) 331 U.S. 722, 729 (Rutherford Food);
Scantland v. Jeffry Knight, Inc. (11th Cir. 2013) 721 F.3d 1308, 1311 (Scantland);
Brock v. Superior Care, Inc. (2d Cir. 1988) 840 F.2d 1054, 1058-1059 (Superior
Care); Sec’y of Labor, U.S. Dept. of Labor v. Lauritzen (7th Cir. 1987) 835 F.2d
1529, 1535-1539 (Lauritzen); see id. at pp. 1539-1545 (conc. opn. of Easterbrook,
J.); Silent Woman, Ltd. v. Donovan (E.D.Wis. 1984) 585 F.Supp. 447, 450-452
(Silent Woman, Ltd.); Jeffcoat v. State Dept. of Labor (Alaska 1987) 732 P.2d
1073, 1075-1078; Cejas Commercial Interiors, Inc. v. Torres-Lizama (Or.Ct.App.
2013) 316 P.3d 389, 397; Commonwealth v. Stuber (Pa. 2003) 822 A.2d 870,
873-875; Anfinson v. FedEx Ground Package System (Wn. 2012) 281 P.3d 289,
297-299; see generally U.S. Dept. of Labor, Wage & Hour Div., Administrator’s
Interpretation letter No. 2015-1, The Application of the Fair Labor Standard Act’s
“Suffer or Permit” Standard in the Identification of Employees Who Are
Misclassified as Independent Contractors (July 15, 2015) available online at
<http://www.blr.com/html_email/AI2015-1.pdf> [as of Apr. 30, 2018].)19
19
The U.S. Department of Labor Wage and Hour Administrator’s Interpretation
No. 2015-1 was withdrawn by the Secretary of Labor on June 7, 2017. (See U.S.
Dept. of Labor, News Release (Jun 7, 2017).
<https://www.dol.gov/newsroom/releases/opa/opa20170607> [as of Apr. 30, 2018].
No new administrative guidance on this subject has been published to date.
55
As we explain, for a variety of reasons we agree with these authorities that
the suffer or permit to work standard is relevant and significant in assessing the
scope of the category of workers that the wage order was intended to protect. The
standard is useful in determining who should properly be treated as covered
employees, rather than excluded independent contractors, for purposes of the
obligations imposed by the wage order.
At the outset, it is important to recognize that over the years and throughout
the country, a number of standards or tests have been adopted in legislative
enactments, administrative regulations, and court decisions as the means for
distinguishing between those workers who should be considered employees and
those who should be considered independent contractors.20 The suffer or permit
to work standard was proposed and adopted in 1937 as part of the FLSA, the
20
The various standards are frequently described as falling within three broad
categories. (See, e.g., Dubal, Wage Slave or Entrepreneur?: Contesting the
Dualism of Legal Worker Identities (2017) 105 Cal.L.Rev. 65, 72.
The first category is commonly characterized as embodying the common
law standard, because the standards within this category give significant weight to
evidence of the hirer’s right to control the details of the work, which had its origin
in the common law tort and respondeat superior context. These standards
supplement the control of details factor with a variety of additional circumstances,
often described as secondary factors. The United States Supreme Court’s decision
in Darden, supra, 503 U.S. 318, in holding that this standard applies in
interpreting the meaning of the term “employee” in federal statutes that do not
otherwise provide a meaningful definition of that term, lists 12 secondary factors
to be considered in addition to the right to control factor. (503 U.S. at p. 323
[quoting Community for Creative Non-Violence v. Reid (1989) 490 U.S. 730, 751-
752].) The IRS has adopted a variation of this standard which lists 20 secondary
factors (IRS, Revenue Ruling 87-41, 1987-1 C. B. 296, 298-299); the state of
Kansas also has adopted a variation which lists 20 secondary factors, some but not
all of which are similar to those applied in other jurisdictions. (See, e.g., Craig v.
FedEx Ground Package Sys. (Kan. 2014) 335 P.3d 66, 75-76.) Although this
court’s decision in Borello has sometimes been described as adopting the common
law standard, as discussed above (ante, pp. 26-35), in Borello we explained that
(footnote continued on next page)
56
(footnote continued from previous page)
under California law the control factor is not as concerned with the hiring entity’s
control over the details of a worker’s work as it is with determining whether the
hiring entity has retained “necessary control” over the work, and Borello further
made clear that consideration of all of the relevant factors is directed at
determining whether treatment of the worker as an employee or an independent
contractor would best effectuate the purpose of the statute at issue. (Borello,
supra, 48 Cal.3d at pp. 356-359.
The second category is the “economic reality” (or “economic realities”
standard that has been adopted in federal decisions as the standard applicable in
cases arising under the FLSA . (See, e.g., Goldberg v. Whitaker House Co-op,
Inc. (1961) 366 U.S. 28, 33 (Whitaker House Co-op); Tony & Susan Alamo
Foundation v. Sec’y of Labor (1985) 471 U.S. 290, 301 (Alamo Foundation).
These cases interpret the “suffer or permit to work” definition of “employ” in the
FLSA (29 U.S.C. § 203(g)) as intended to treat as employees those workers who,
as a matter of economic reality, are economically dependent upon the hiring
business, rather than realistically being in business for themselves. In making this
determination, lower federal court decisions generally refer to a list of factors,
many that are considered under the common law standards, including “(1) the
degree of control exercised by the employer over the workers, (2) the workers’
opportunity for profit or loss and their investment in the business, (3) the degree of
skill and independent initiative required to perform the work, (4) the permanence
or duration of the working relationship, and (5) the extent to which the work is an
integral part of the employer’s business.” (Zheng v. Liberty Apparel Co. (2d Cir.
2003) 355 F.3d 61, 67; Superior Care, supra, 840 F.2d at pp. 1058-1059; see
generally Annot., Determination of “Independent Contractor” and “Employee”
Status For Purposes of § 3(e)(1) of the Fair Labor Standards Act (29 U.S.C.A.
§ 203(e)(1)) (1981) 51 A.L.R.Fed. 702.
The third category of standards is described as embodying the “ABC
standard.” This standard, whose objective is to create a simpler, clearer test for
determining whether the worker is an employee or an independent contractor,
presumes a worker hired by an entity is an employee and places the burden on the
hirer to establish that the worker is an independent contractor. Under the ABC
standard, the worker is an employee unless the hiring entity establishes each of
three designated factors: (a) that the worker is free from control and direction over
performance of the work, both under the contract and in fact; (b) that the work
provided is outside the usual course of the business for which the work is
performed; and (c) that the worker is customarily engaged in an independently
established trade, occupation or business (hence the ABC standard). If the hirer
fails to show that the worker satisfies each of the three criteria, the worker is
(footnote continued on next page)
57
principal federal wage and hour legislation. One of the authors of the legislation,
then-Senator (later United States Supreme Court Justice) Hugo L. Black, described
this standard as “the broadest definition” that has been devised for extending the
coverage of a statute or regulation to the widest class of workers that reasonably
fall within the reach of a social welfare statute. (See United States v. Rosenwasser
(1945) 323 U.S. 360, 363, fn. 3 (Rosenwasser).) More recent cases, in referring to
the suffer or permit to work standard, continue to describe the standard in just such
broad, inclusive terms. (See, e.g., Darden, supra, 503 U.S. at p. 326 [noting the
“striking breadth” of the suffer or permit to work standard]; Zheng v. Liberty
Apparel Co., supra, 355 F.3d at p. 69; Lauritzen, supra, 835 F.2d at p. 1543 (conc.
opn. of Easterbrook, J.); Donovan v. Dialamerica Marketing, Inc. (3d Cir. 1985
757 F.2d 1376, 1382.
The adoption of the exceptionally broad suffer or permit to work standard
in California wage orders finds its justification in the fundamental purposes and
necessity of the minimum wage and maximum hour legislation in which the
standard has traditionally been embodied. Wage and hour statutes and wage
orders were adopted in recognition of the fact that individual workers generally
possess less bargaining power than a hiring business and that workers’
(footnote continued from previous page)
treated as an employee, not an independent contractor. (See generally Deknatel &
Hoff-Downing, ABC on the Books and in the Courts: An Analysis of Recent
Independent Contractor and Misclassification Statutes (2015) 18 U.Pa. J.L. &
Soc. Change 53 (ABC on the Books).
In addition to these three categories, the recent Restatement of Employment
Law, adopted by the American Law Institute in 2015, sets forth a standard which
focuses, in addition to the control of details factor, on the entrepreneurial
opportunity that the worker is afforded. (See Rest., Employment, § 1.01, subds.
(a), (b); see also FedEx Home Delivery v. NLRB (D.C. Cir. 2009) 563 F.3d 492,
497.
58
fundamental need to earn income for their families’ survival may lead them to
accept work for substandard wages or working conditions. The basic objective of
wage and hour legislation and wage orders is to ensure that such workers are
provided at least the minimal wages and working conditions that are necessary to
enable them to obtain a subsistence standard of living and to protect the workers’
health and welfare. (See, e.g., Rosenwasser, supra, 323 U.S. at p. 361 [wage and
hour laws are intended to protect workers against “ ‘the evils and dangers resulting
from wages too low to buy the bare necessities of life and from long hours of work
injurious to health’ ”]; Industrial Welf .Com., supra, 27 Cal.3d at p. 700 [purpose
of California wage orders is “to protect the health and welfare” of workers].
These critically important objectives support a very broad definition of the
workers who fall within the reach of the wage orders.
These fundamental obligations of the IWC’s wage orders are, of course,
primarily for the benefit of the workers themselves, intended to enable them to
provide at least minimally for themselves and their families and to accord them a
modicum of dignity and self-respect. (See generally Rogers, Justice at Work:
Minimum Wage Laws and Social Equality (2014) 92 Tex. L.Rev. 1543.) At the
same time, California’s industry-wide wage orders are also clearly intended for the
benefit of those law-abiding businesses that comply with the obligations imposed
by the wage orders, ensuring that such responsible companies are not hurt by
unfair competition from competitor businesses that utilize substandard
employment practices. (See § 90.5, subd. (a);21 accord Citicorp. Industrial Credit,
21
Section 90.5, subdivision (a) provides: “It is the policy of this state to
vigorously enforce minimum labor standards in order to ensure employees are not
required or permitted to work under substandard unlawful conditions or for
employers that have not secured the payment of compensation, and to protect
employers who comply with the law from those who attempt to gain a competitive
(footnote continued on next page)
59
Inc. v. Brock (1987) 483 U.S. 27, 36 [“While improving working conditions was
undoubtedly one of Congress’ concerns, it was certainly not the only aim of the
FLSA. In addition to the goal [of establishing decent wages], the Act’s
declaration of policy . . . reflects Congress’ desire to eliminate the competitive
advantage enjoyed by goods produced under substandard conditions”]; Roland Co.
v. Walling (1946) 326 U.S. 657, 669-670 [“[The FLSA] seeks to eliminate
substandard labor conditions . . . on a wide scale throughout the nation. The
purpose is to raise living standards. This purpose will fail of realization unless the
Act has sufficiently broad coverage to eliminate in large measure . . . the
competitive advantage accruing from savings in costs based upon substandard
labor conditions. Otherwise the Act will be ineffective, and will penalize those
who practice fair labor standards as against those who do not”].) Finally, the
minimum employment standards imposed by wage orders are also for the benefit
of the public at large, because if the wage orders’ obligations are not fulfilled the
public will often be left to assume responsibility for the ill effects to workers and
their families resulting from substandard wages or unhealthy and unsafe working
conditions.
Given the intended expansive reach of the suffer or permit to work standard
as reflected by its history, along with the more general principle that wage orders
are the type of remedial legislation that must be liberally construed in a manner
that serves its remedial purposes (see, e.g., Industrial Welf. Com., supra, 27 Cal.3d
at p. 702), as our decision in Martinez recognized, the suffer or permit to work
standard must be interpreted and applied broadly to include within the covered
(footnote continued from previous page)
advantage at the expense of their workers by failing to comply with minimum
labor standards.”
60
“employee” category all individual workers who can reasonably be viewed as
“working in the [hiring entity’s] business.” (Martinez, supra, 49 Cal.4th at p. 69,
italics added [“A proprietor who knows that persons are working in his or her
business without having been formally hired, or while being paid less than the
minimum wage, clearly suffers or permits that work by failing to prevent it, while
having the power to do so” (italics added)].) Under the suffer or permit to work
standard, an individual worker who has been hired by a company can properly be
viewed as the type of independent contractor to which the wage order was not
intended to apply only if the worker is the type of traditional independent
contractor — such as an independent plumber or electrician — who would not
reasonably have been viewed as working in the hiring business. Such an
individual would have been realistically understood, instead, as working only in
his or her own independent business. (See, e.g., Allen v. Hayward (Q.B. 1845
115 Eng.Rep. 749, 755 [describing independent contractor as “a person carrying
on an independent business . . . to perform works which [the hiring local officials]
could not execute for themselves, and who was known to all the world as
performing them”]; Enforcing Fair Labor Standards, supra, 46 UCLA L.Rev. at
pp. 1143-1144.
The federal courts, in applying the suffer or permit to work standard set
forth in the FLSA, have recognized that the standard was intended to be broader
and more inclusive than the preexisting common law test for distinguishing
employees from independent contractors, but at the same time, does not purport to
render every individual worker an employee rather than an independent contractor.
(See Rutherford Food, supra, 331 U.S. 722, 728-729.) As noted above (ante,
pp. 56-58, fn. 20), the federal courts have developed what is generally described as
the “economic reality” test for determining whether a worker should be considered
an employee or independent contractor for purposes of the FLSA — namely,
61
whether, as a matter of economic reality, the worker is economically dependent
upon and makes a living in another’s business (in which case he or she is
considered to be a covered employee) or, instead is in business for himself or
herself (and may properly be considered an excluded independent contractor).
(See, e.g., Whitaker House Co-op, supra, 366 U.S. 28, 33; Alamo Foundation,
supra, 471 U.S. 290, 301.) In applying the economic reality test, federal courts
have looked to a list of factors that is briefer than, but somewhat comparable to,
the list of factors considered in the pre-Borello California decisions and in Borello
itself. (See, e.g., Superior Care, supra, 840 F.2d at p. 1059; Lauritzen, supra, 835
F.2d at pp. 1534-1535.) Furthermore, like Borello, federal FLSA decisions
applying the economic reality standard have held that no one factor is
determinative and that the ultimate decision whether a worker is to be found to be
an employee or independent contractor for purposes of the FLSA should be based
on all the circumstances. (Rutherford Food, supra, 331 U.S. at p. 730; Scantland,
supra, 721 F.3d at pp. 1312-1313; Real v. Driscoll Strawberry Associates, Inc.
(1979) 603 F.3d 748, 754-755; see generally Annot., supra, 51 A.L.R.Fed. 702.
A multifactor standard — like the economic reality standard or the Borello
standard — that calls for consideration of all potentially relevant factual
distinctions in different employment arrangements on a case-by-case, totality-of-
the-circumstances basis has its advantages. A number of state courts,
administrative agencies and academic commentators have observed, however, that
such a wide-ranging and flexible test for evaluating whether a worker should be
considered an employee or an independent contractor has significant
disadvantages, particularly when applied in the wage and hour context.
First, these jurisdictions and commentators have pointed out that a
multifactor, “all the circumstances” standard makes it difficult for both hiring
businesses and workers to determine in advance how a particular category of
62
workers will be classified, frequently leaving the ultimate employee or
independent contractor determination to a subsequent and often considerably
delayed judicial decision. In practice, the lack of an easily and consistently
applied standard often leaves both businesses and workers in the dark with respect
to basic questions relating to wages and working conditions that arise regularly, on
a day-to-day basis. (See, e.g., Hargrove v. Sleepy’s, LLC (N.J. 2015) 106 A.3d
449, 465 (Hargrove) [“permitting an employee to know when, how, and how
much he will be paid requires a test designed to yield a more predictable result
than a totality-of-the-circumstances analysis that is by its nature case specific”];
accord Lauritzen, supra, 835 F.2d at p. 1539 (conc. opn. of Easterbrook, J.
[“People are entitled to know the legal rules before they act, and only the most
compelling reason should lead a court to announce an approach under which no
one can know where he stands until litigation has been completed. . . . My
colleagues’ balancing approach is the prevailing method, which they apply
carefully. But it is unsatisfactory both because it offers little guidance for future
cases and because any balancing test begs questions about which aspects of
‘economic reality’ matter, and why”].
Second, commentators have also pointed out that the use of a multifactor,
all the circumstances standard affords a hiring business greater opportunity to
evade its fundamental responsibilities under a wage and hour law by dividing its
work force into disparate categories and varying the working conditions of
individual workers within such categories with an eye to the many circumstances
that may be relevant under the multifactor standard. (See, e.g., Middleton,
Contingent Workers in a Changing Economy: Endure, Adapt, or Organize? (1997
22 N.Y.U. Rev. L. & Soc. Change 557, 568-569 [“[t]he legal test for determining
employee/independent contractor status is a complex and manipulable multifactor
test which invites employers to structure their relationships with employees in
63
whatever manner best evades liability”]; Befort, Labor and Employment Law at
the Millennium: A Historical Review and Critical Assessment (2002) 43 B.C.
L.Rev. 351, 419; Carlson, Why the Law Still Can’t Tell an Employee When It Sees
One and How It Ought to Stop Trying (2001) 22 Berkeley J. Emp. & Lab. L. 295,
335-338.)22
As already noted (ante, pp. 56-58, fn. 20), a number of jurisdictions have
adopted a simpler, more structured test for distinguishing between employees and
independent contractors — the so-called “ABC” test — that minimizes these
disadvantages. The ABC test presumptively considers all workers to be
employees, and permits workers to be classified as independent contractors only if
the hiring business demonstrates that the worker in question satisfies each of three
conditions: (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 the work and in fact; and (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 that involved in the work performed.23
22
Some jurists and commentators have advanced broader criticisms of the
“economic reality” standard as applied by federal decisions, suggesting that the
various factors are not readily susceptible to consistent application and that the
standard — originally formulated in decisions dealing with other New Deal labor
statutes (see Martinez, supra, 49 Cal.4th at pp. 66-67) — is not as expansive as the
suffer or permit to work standard was intended to be. (See, e.g., Lauritzen, supra,
835 F.2d at pp. 1539-1545 (conc. opn. of Easterbrook, J.); Enforcing Fair Labor
Standards, supra, 46 UCLA L.Rev. at pp. 1115-1123.
23
The wording of the ABC test varies in some respects from jurisdiction to
jurisdiction. (See ABC on the Books, supra, 18 U.Pa. J.L. & Soc. Change, at
pp. 67-71.) The version we have set forth in text (and which we adopt hereafter
(post, pp. 66-77)) tracks the Massachusetts version of the ABC test. (See
Mass.G.L., ch. 149, § 148B; see also Del.Code Ann., tit. 19, §§ 3501(a)(7),
(footnote continued on next page)
64
Unlike a number of our sister states that included the suffer-or-permit-to-work
standard in their wage and hour laws or regulations after the FLSA had been enacted
and had been interpreted to incorporate the economic reality test, California’s
adoption of the suffer or permit to work standard predated the enactment of the
FLSA. (See Martinez, supra, 40 Cal.4th at pp. 57-59.) Thus, as a matter of
legislative intent, the IWC’s adoption of the suffer or permit to work standard in
California wage orders was not intended to embrace the federal economic reality test.
Furthermore, prior California cases have declined to interpret California wage orders
as governed by the federal economic reality standard and instead have indicated that
the California wage orders are intended to provide broader protection than that
accorded workers under the federal standard. (See Martinez, supra, 49 Cal.4th at
pp. 66-68; accord Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833,
(footnote continued from previous page)
3503(c).) Unlike some other versions, which provide that a hiring entity may
satisfy part B by establishing either (1) that the work provided is outside the usual
course of the business for which the work is performed, or (2) that the work
performed is outside all the places of business of the hiring entity (see, e.g., N.J.
Stat. Ann. § 43:21-19(i)(6)(A-C)), the Massachusetts version permits the hiring
entity to satisfy part B only if it establishes that the work is outside the usual
course of the business of the hiring entity. In light of contemporary work
practices, in which many employees telecommute or work from their homes, we
conclude the Massachusetts version of part B provides the alternative that is more
consistent with the intended broad reach of the suffer or permit to work definition
in California wage orders.
Many jurisdictions that have adopted the ABC test use the standard only in
the unemployment insurance context, but other jurisdictions use the ABC test
more generally in determining the employee or independent contractor question
with respect to a variety of employee-protective labor statutes. (See, e.g.,
Mass.G.L. ch. 149, §148B; Del. Code Ann., tit. 19, §§ 3501(a)(7), 3503(c);
Hargrove, supra, 106 A.3d at pp. 462-465; see generally ABC on the Books,
supra, 18 U.Pa. J.L. & Soc. Change, at pp. 65-72 [discussing numerous state
statutes and judicial decisions].
65
843; Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 592; Ramirez v.
Yosemite Water Co. (1999) 20 Cal.4th 785, 797-798.
We find merit in the concerns noted above regarding the disadvantages,
particularly in the wage and hour context, inherent in relying upon a multifactor,
all the circumstances standard for distinguishing between employees and
independent contractors. As a consequence, we conclude it is appropriate, and
most consistent with the history and purpose of the suffer or permit to work
standard in California’s wage orders, to interpret that standard as: (1) placing the
burden on the hiring entity to establish that the worker is an independent
contractor who was not intended to be included within the wage order’s
coverage;24 and (2) requiring the hiring entity, in order to meet this burden, to
establish each of the three factors embodied in the ABC test — namely (A) that
the worker is free from the control and direction of the hiring entity in connection
with the performance of the work, both under the contract for the performance of
the work and in fact; and (B) that the worker performs work that is outside the
24
Even in the workers’ compensation context in which the applicable
California statutes contain a definition of “employee” that is less expansive than
that provided by the suffer or permit to work standard (see §§ 3351, 3353), the
accompanying statutes establish that “[a hiring business] seeking to avoid liability
has the burden of proving that persons whose services [the business] has retained
are independent contractors rather than employees.” (Borello, supra, 48 Cal.3d at
p. 349, citing §§ 3357, 5705, subd. (a).) Moreover, the rule that a hiring entity has
the burden of establishing that a worker is an independent contractor rather than an
employee has long been applied in California decisions outside the workers’
compensation context. (See, e.g., Robinson v. George (1940) 16 Cal.2d 238, 242;
Linton v. DeSoto Cab Co., Inc. (2017) 15 Cal.App.5th 1208, 1220-1221.
Accordingly, the expansive suffer or permit to work standard is reasonably
interpreted as placing the burden on a hiring business to prove that a worker the
business has retained is not an employee who is covered by an applicable wage
order but rather an independent contractor to whom the wage order was not
intended to apply.
66
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. (Accord Hargrove, supra, 106 A.3d at pp. 463-
46425; see also Weil, The Fissured Workplace (2014) pp. 204-205 [recommending
adoption of the ABC test]; ABC on the Books, supra, 18 U.Pa. J.L. & Soc. Change
at pp. 61, 82-84, 101-10226.
25
In Hargrove, supra, 106 A.3d 449, the New Jersey Supreme Court was
faced with the question of the proper standard to be applied in determining
whether a worker should be considered a covered employee or an excluded
independent contractor for purposes of two distinct New Jersey labor statutes, the
New Jersey Wage Payment Law and the New Jersey Wage and Hour Law. Both
statutes defined the term “employ” or “employee” to include “to suffer or to
permit to work” (see N.J. Stat. Ann. § 34:11-4.1(b); N.J. Stat. Ann. § 34:11-
56a1(f)), and the New Jersey Department of Labor, in applying the Wage and
Hour Law, had utilized the ABC standard — a standard incorporated in the New
Jersey Unemployment Compensation Act (N.J. Stat. Ann. § 43:21-19(i)(6)(A)-
(C)) — in determining whether a worker was an employee or independent
contractor for purposes of the Wage and Hour Law. (See N.J. Adm. Code
§ 12:56-16.1.) In Hargrove, the New Jersey Supreme Court concluded that “any
employment-status dispute arising under [either the New Jersey Wage Payment
Law or the New Jersey Wage and Hour Law] should be resolved by utilizing the
‘ABC’ test . . . .” (106 A.3d at p. 463.
In reaching this conclusion, the court in Hargrove recognized that both of
the New Jersey statutes in question “use the term ‘suffer or permit’ to define those
who are within the protection of each statute” and that such language had been
interpreted in federal decisions to support the “economic reality” standard.
(Hargrove, supra, 106 A.3d at p. 463.) Nonetheless, the court in Hargrove, in
finding that application of the ABC test was appropriate, relied in part on the fact
that “the ‘ABC’ test operates to provide more predictability and may cast a wider
net than the FLSA ‘economic realities’ standard” and that “[by] requiring each
identified factor to be satisfied to permit classification as an independent
contractor, the ‘ABC’ test fosters the provision of greater income security for
workers, which is the express purpose of both [statutes].” (Hargrove, supra, 106
A.3d at p. 464.
26
The recent ABC on the Books article, which comprehensively reviews
recent legislative measures and judicial decisions on this subject, concludes that
(footnote continued on next page)
67
We briefly discuss each part of the ABC test and its relationship to the
suffer or permit to work definition.
1. Part A: Is the worker free from the control and direction of the
hiring entity in the performance of the work, both under the contract
for the performance of the work and in fact?
First, as our decision in Martinez makes clear (Martinez, supra, 49 Cal.3d
at p. 58), the suffer or permit to work definition was intended to be broader and
more inclusive than the common law test, under which a worker’s freedom from
the control of the hiring entity in the performance of the work, both under the
contract for the performance of the work and in fact, was the principal factor in
establishing that a worker was an independent contractor rather than an employee.
Accordingly, because a worker who is subject, either as a matter of contractual
right or in actual practice, to the type and degree of control a business typically
exercises over employees would be considered an employee under the common
law test, such a worker would, a fortiori, also properly be treated as an employee
for purposes of the suffer or permit to work standard. Further, as under Borello,
supra, 48 Cal.3d at pages 353-354, 356-357, depending on the nature of the work
and overall arrangement between the parties, a business need not control the
precise manner or details of the work in order to be found to have maintained the
necessary control that an employer ordinarily possesses over its employees, but
(footnote continued from previous page)
“case law suggests that thus far, the ABC test allows courts to look beyond labels
and evaluate whether workers are truly engaged in a separate business or whether
the business is being used by the employer to evade wage, tax, and other
obligations.” (ABC on the Books, supra, 18 U.Pa. J.L. & Soc. Change at p. 84.
68
does not possess over a genuine independent contractor. The hiring entity must
establish that the worker is free of such control to satisfy part A of the test.27
2. Part B: Does the worker perform work that is outside the usual
course of the hiring entity’s business?
Second, independent of the question of control, the child labor antecedents
of the suffer or permit to work language demonstrate that one principal objective
of the suffer or permit to work standard is to bring within the “employee” category
27
In Fleece on Earth v. Dep’t of Emple. & Training (Vt. 2007) 923 A.2d 594,
the Vermont Supreme Court held that the plaintiff children’s wear company that
designed all the clothing sold by the company and provided all the patterns and
yarn for work-at-home knitters and sewers who made the clothing had failed to
establish that the workers were sufficiently free of the company’s control to satisfy
part A of the ABC test, even though the knitters and sewers worked at home on
their own machines at their own pace and on the days and at the times of their own
choosing. Noting that the labor statute at issue “seeks to protect workers and
envisions employment broadly,” the court reasoned that “[t]he degree of control
and direction over the production of a retailer’s product is no different when the
sweater is knitted at home at midnight than if it were produced between nine and
five in a factory. That the product is knit, not crocheted, and how it is to be knit, is
dictated by the pattern provided by [the company]. To reduce part A of the ABC
test to a matter of what time of day and in whose chair the knitter sits when the
product is produced ignores the protective purpose of the [applicable] law.”
(923 A.2d at pp. 599-600.) (See, e.g., Western Ports v. Employment Sec. Dept.
(Wn.Ct.App. 2002) 41 P.3d 510, 517-520 [hiring entity failed to establish that
truck driver was free from its control within the meaning of part A of the ABC
test, where hiring entity required driver to keep truck clean, to obtain the
company’s permission before transporting passengers, to go to the company’s
dispatch center to obtain assignments not scheduled in advance, and could
terminate driver’s services for tardiness, failure to contact the dispatch unit, or any
violation of the company’s written policy]; cf., e.g., Great N. Constr., Inc. v. Dept.
of Labor (Vt. 2016) 161 A.3d 1207, 1215 [construction company established that
worker who specialized in historic reconstruction was sufficiently free of the
company’s control to satisfy part A of the ABC test, where worker set his own
schedule, worked without supervision, purchased all materials he used on his own
business credit card, and had declined an offer of employment proffered by the
company because he wanted control over his own activities].
69
all individuals who can reasonably be viewed as working “in the [hiring entity’s]
business” (see Martinez, supra, 49 Cal.4th at p. 69, italics added), that is, all
individuals who are reasonably viewed as providing services to the business in a
role comparable to that of an employee, rather than in a role comparable to that of
a traditional independent contractor. (Accord Rutherford Food, supra, 331 U.S. at
p. 729 [under FLSA, label put on relationship by hiring business is not controlling
and inquiry instead focuses on whether “the work done, in essence, follows the
usual path of an employee’].) Workers whose roles are most clearly comparable
to those of employees include individuals whose services are provided within the
usual course of the business of the entity for which the work is performed and thus
who would ordinarily be viewed by others as working in the hiring entity’s
business and not as working, instead, in the worker’s own independent business.
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. (See, e.g., Enforcing Fair Labor Standards, supra, 46 UCLA L.Rev. at
p. 1159.) 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 (cf., e.g., Silent Woman, Ltd.,
supra, 585 F.Supp. at pp. 450-452; accord Whitaker House Co-op, supra, 366 U.S.
28), or when a bakery hires cake decorators to work on a regular basis on its
custom-designed cakes (cf., e.g,, Dole v. Snell (10th Cir. 1989) 875 F.2d 802,
811), 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. In the latter settings, the workers’ role
70
within the hiring entity’s usual business operations is more like that of an
employee than that of an independent contractor.
Treating all workers whose services are provided within the usual course of
the hiring entity’s business as employees is important to ensure that those workers
who need and want the fundamental protections afforded by the wage order do not
lose those protections. If the wage order’s obligations could be avoided for
workers who provide services in a role comparable to employees but who are
willing to forgo the wage order’s protections, other workers who provide similar
services and are intended to be protected under the suffer or permit to work
standard would frequently find themselves displaced by those willing to decline
such coverage. As the United States Supreme Court explained in a somewhat
analogous context in Alamo Foundation, supra, 471 U.S. at page 302, with respect
to the federal wage and hour law: “[T]he purposes of the [FLSA] require that it be
applied even to those who would decline its protections. If an exception to the Act
were carved out for employees willing to testify that they performed work
‘voluntarily,’ employers might be able to use superior bargaining power to coerce
employees to make such assertions, or to waive their protections under the Act.
[Citations.] Such exceptions to coverage would affect many more people than
those workers directly at issue in this case and would be likely to exert a general
downward pressure on wages in competing businesses.” (Ibid.
As the quoted passage from the Alamo Foundation case suggests, a focus
on the nature of the workers’ role within a hiring entity’s usual business operation
also aligns with the additional purpose of wage orders to protect companies that in
good faith comply with a wage order’s obligations against those competitors in the
same industry or line of business that resort to cost saving worker classifications
that fail to provide the required minimum protections to similarly situated workers.
A wage order’s industry-wide minimum requirements are intended to create a
71
level playing field among competing businesses in the same industry in order to
prevent the type of “race to the bottom” that occurs when businesses implement
new structures or policies that result in substandard wages and unhealthy
conditions for workers. (Accord Gemsco, Inc. v. Walling (1945) 324 U.S. 244,
252 [“[I]f the [proposed restrictions on homeworkers] cannot be made, the floor
for the entire industry falls and the right of the homeworkers and the employers to
be free from the prohibition destroys the right of the much larger number of
factory workers to receive the minimum wage”]; see generally Enforcing Fair
Labor Standards, supra, 46 UCLA. L.Rev. at pp. 1178-1103.) Competing
businesses that hire workers who perform the same or comparable duties within
the entities’ usual business operations should be treated similarly for purposes of
the wage order.28
Accordingly, a hiring entity must establish that the worker performs work
that is outside the usual course of its business in order to satisfy part B of the ABC
test.29
28
If a business concludes that there are economic or noneconomic advantages
other than avoiding the obligations imposed by the wage order to be obtained by
according greater freedom of action to its workers, the business is, of course, free
to adopt those conditions while still treating the workers as employees for
purposes of the applicable wage order. Thus, for example, if a business concludes
that it improves the morale and/or productivity of a category of workers to afford
them the freedom to set their own hours or to accept or decline a particular
assignment, the business may do so while still treating the workers as employees
for purposes of the wage order.
29
In McPherson Timberlands v. Unemployment Ins. Comm’n (Me. 1998) 714
A.2d 818, the Maine Supreme Court held that the cutting and harvesting of timber
by an individual worker was work performed in the usual course of business of the
plaintiff timber management company whose business operation involved
contracting for the purchase and harvesting of trees and the sale and delivery of
the cut timber to customers. Rejecting the company’s contention that the timber
(footnote continued on next page)
72
3. Part C: Is the worker customarily engaged in an independently
established trade, occupation, or business of the same nature as the
work performed for the hiring entity?
Third, as the situations that gave rise to the suffer or permit to work
language disclose, the suffer or permit to work standard, by expansively defining
who is an employer, is intended to preclude a business from evading the
prohibitions or responsibilities embodied in the relevant wage orders directly or
indirectly — through indifference, negligence, intentional subterfuge, or
misclassification. It is well established, under all of the varied standards that have
been utilized for distinguishing employees and independent contractors, that a
business cannot unilaterally determine a worker’s status simply by assigning the
worker the label “independent contractor” or by requiring the worker, as a
(footnote continued from previous page)
harvesting work was outside its usual course of business because the company did
not currently own any timber harvesting equipment itself, the court upheld an
administrative ruling that the harvesting work was “not ‘merely incidental’ to [the
company’s] business, but rather was an ‘integral part of’ that business.” (714 A.2d
at p. 821.) By contrast, in Great N. Constr., Inc. v. Dept. of Labor, supra, 161
A.3d at page 1215, the Vermont Supreme Court held the hiring entity, a general
construction company, had established that the specialized historic restoration
work performed by the worker in question was outside the usual course of the
company’s business within the meaning of part B, where the work involved the
use of specialized equipment and special expertise that the company did not
possess and did not need for its usual general commercial and residential work.
(See also, e.g., Appeal of Niadni, Inc. (2014) 166 N.H. 256 [performance of live
entertainers within usual course of business of plaintiff resort which advertised
and regularly provided entertainment]; Mattatuck Museum-Mattatuck Historical
Soc’y v. Administrator, Unemployment Compensation Act (Conn. 1996) 679 A.2d
347, 351-352 [art instructor who taught art classes at museum performed work
within the usual course of the museum’s business, where museum offered art
classes on a regular and continuous basis, produced brochures announcing the art
courses, class hours, registration fees and instructor’s names, and discounted the
cost of the classes for museum members].
73
condition of hiring, to enter into a contract that designates the worker an
independent contractor. (See, e.g., Borello, supra, 48 Cal.3d at pp. 349, 358-359;
Rutherford Food, supra, 331 U.S. at p. 729.) This restriction on a hiring
business’s unilateral authority has particular force and effect under the wage
orders’ broad suffer or permit to work standard.
As a matter of common usage, the term “independent contractor,” when
applied to an individual worker, ordinarily has been understood to refer to an
individual who independently has made the decision to go into business for
himself or herself. (See, e.g., Borello, supra, 48 Cal.3d at p. 354 [describing
independent contractor as a worker who “has independently chosen the burdens
and benefits of self-employment”].) Such an individual generally takes 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. When a worker has not independently decided to engage
in an independently established business but instead is simply designated an
independent contractor by the unilateral action of a hiring entity, there is a
substantial risk that the hiring business is attempting to evade the demands of an
applicable wage order through misclassification. A company that labels as
independent contractors a class of workers who are not engaged in an
independently established business in order to enable the company to obtain the
economic advantages that flow from avoiding the financial obligations that a wage
order imposes on employers unquestionably violates the fundamental purposes of
the wage order. The fact that a company has not prohibited or prevented a worker
74
from engaging in such a business is not sufficient to establish that the worker has
independently made the decision to go into business for himself or herself.30
Accordingly, in order to satisfy part C of the ABC test, the hiring entity
must prove that the worker is customarily engaged in an independently established
trade, occupation, or business.31
30
Courts in other states that apply the ABC test have held that the fact that the
hiring business permits a worker to engage in similar activities for other
businesses is not sufficient to demonstrate that the worker is “ ‘customarily
engaged in an independently established . . . business’ ” for purposes of part (C) of
that standard. (JSF Promotions, Inc. v. Administrator (Conn. 2003) 828 A.2d 609,
613; see Midwest Property Recovery, Inc. v. Job Service of North Dakota (N.D.
1991) 475 N.W.2d 918, 924; McGuire v. Dept. of Employment Security (Utah
Ct.App. 1989) 768 P.2d 985, 988 [“the appropriate inquiry under part (C) is
whether the person engaged in covered employment actually has such an
independent business, occupation, or profession, not whether he or she could have
one”]; see also In re Bargain Busters, Inc. (Vt. 1972) 287 A.2d 554, 559
[explaining that under part C of the ABC test, “ ‘[t]he adverb “independently”
clearly modifies the word “established”, and must carry the meaning that the trade,
occupation, profession or business was established, independently of the employer
or the rendering of the personal service forming the basis of the claim’ ”].
31
In Brothers Const. Co. v. Virginia Empl. Comm’n (Va.Ct.App. 1998) 494
S.E.2d 478, 484, the Virginia Court of Appeal concluded that the hiring entity had
failed to prove that its siding installers were engaged in an independently
established business where, although the installers provided their own tools, no
evidence was presented that “the installers had business cards, business licenses,
business phones, or business locations” or had “received income from any party
other than” the hiring entity. (See also, e.g., Boston Bicycle Couriers v. Deputy
Dir. Of the Div. of Empl. & Training (Mass. App.Ct. 2002) 778 N.E.2d 964, 971
[hiring entity, a same-day pickup and delivery service, failed to establish that
bicycle courier was engaged in an independently established business under part C
of the ABC test, where entity did not present evidence that courier “held himself
out as an independent businessman performing courier services for any
community of potential customers” or that he “had his own clientele, utilized his
own business cards or invoices, advertised his services or maintained a separate
place of business and telephone listing”]; cf., e.g., Southwest Appraisal Grp., LLC
v. Adm’r, Unemployment Compensation Act (Conn. 2017) 155 A.3d 738, 741-752
[administrative agency erred in determining that hiring entity failed to establish
(footnote continued on next page)
75
It bears emphasis that in order to establish that a worker is an independent
contractor under the ABC standard, the hiring entity is required to establish the
existence of each of the three parts of the ABC standard. Furthermore, inasmuch
as a hiring entity’s failure to satisfy any one of the three parts itself establishes that
the worker should be treated as an employee for purposes of the wage order, a
court is free to consider the separate parts of the ABC standard in whatever order
it chooses. Because in many cases it may be easier and clearer for a court to
determine whether or not part B or part C of the ABC standard has been satisfied
than for the court to resolve questions regarding the nature or degree of a worker’s
freedom from the hiring entity’s control for purposes of part A of the standard, the
significant advantages of the ABC standard — in terms of increased clarity and
consistency — will often be best served by first considering one or both of the
latter two parts of the standard in resolving the employee or independent
contractor question. (See, e.g., Awuah v. Coverall North America, Inc. (D.Mass.
2010) 707 F.Supp.2d 80, 82 [considering only part B of the ABC standard];
Coverall N. America v. Div. of Unemployment (Mass. 2006) 857 N.E.2d 1083,
1087 [considering only part C of the ABC standard]; Boston Bicycle Couriers v.
Deputy Dir. of the Div. of Empl. & Training, supra, 778 N.E.2d at p. 968 [same].
(footnote continued from previous page)
that auto repair appraisers were customarily engaged in an independently
established business based solely on the lack of evidence that appraisers had
actually worked for other businesses, where appraisers had obtained their own
independent licenses, possessed their own home offices, provided their own
equipment, printed their own business cards, and sought work from other
companies].
76
4. Conclusion regarding suffer or permit to work definition
In sum, we conclude that unless the hiring entity establishes (A) that the
worker is free from the control and direction of the hiring entity in connection with
the performance of the work, both under the contract for the performance of the
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, the worker
should be considered an employee and the hiring business an employer under the
suffer or permit to work standard in wage orders. The hiring entity’s failure to
prove any one of these three prerequisites will be sufficient in itself to establish
that the worker is an included employee, rather than an excluded independent
contractor, for purposes of the wage order.
In our view, this interpretation of the suffer or permit to work standard is
faithful to its history and to the fundamental purpose of the wage orders and will
provide greater clarity and consistency, and less opportunity for manipulation,
than a test or standard that invariably requires the consideration and weighing of a
significant number of disparate factors on a case-by-case basis. (Accord
Hargrove, supra, 106 A.3d at pp. 463-464 [interpreting suffer or permit to work
definition of state wage law to permit application of the ABC test]; Tianti v.
William Raveis Real Estate (Conn. 1995) 651 A.2d 1286, 1290-1291 [same].)32
32
In its briefing in this court, Dynamex contends that the suffer or permit to
work standard, if interpreted as the trial court and Court of Appeal determined,
would exceed the IWC’s constitutional authority under article XIV, section 1 of
the California Constitution to “provide for minimum wages and for the general
welfare of employees” (italics added), by effectively treating as employees all
independent contractors and thus expanding the reach of the wage order beyond
constitutionally permissible limits. The interpretation of the suffer or permit to
work standard adopted in this opinion, however, recognizes that the wage orders
are not intended to apply to the type of traditional independent contractor who has
(footnote continued on next page)
77
B. Application of the Suffer or Permit to Work Standard in This Case
We now turn to application of the suffer or permit to work standard in this
case. As Dynamex points out, the trial court, in applying the suffer or permit to
work definition in its class certification order, appears to have adopted a literal
interpretation of the suffer or permit to work language that, if applied generally,
could potentially encompass the type of traditional independent contractor — like
an independent plumber or electrician — who could not reasonably have been
viewed as the hiring business’s employee.33 We agree with Dynamex that the trial
(footnote continued from previous page)
never been viewed as an employee of a hiring business and should not be
interpreted to do so.
Our decision in Martinez makes clear that the IWC, in defining the
employment relationship for purposes of wage orders, was not limited to utilizing
the common law test of employment (Martinez, supra, 49 Cal.4th at pp. 57-66),
and Dynamex does not take issue with Martinez’s conclusion in this regard.
Further, the ABC test for distinguishing employees from independent contractors
provides a common and well-established test for distinguishing employees from
independent contractors. Accordingly, although the constitutional argument set
forth in Dynamex’s briefing is not directed to the standard adopted in this opinion,
to avoid any misunderstanding we conclude that application of the suffer or permit
to work standard, as interpreted in this opinion, to determine whether a worker is
an employee or independent contractor for purposes of a wage order does not
exceed the IWC’s authority under article XIV, section 1 of the California
Constitution.
33
As noted (ante, p. 14), the trial court’s certification order, in applying the
suffer or permit to work standard, stated simply: “An employee is suffered or
permitted to work if the work was performed with the knowledge of the employer.
[Citation.] This includes work that was performed that the employer knew or
should have known about. [Citation.] Again, this is a matter that can be addressed
by looking at Defendant’s policy for entering into agreements with drivers.
Defendant is only liable to those drivers with whom it entered into an agreement
(i.e., knew were providing delivery services to Dynamex customers). This can be
determined through records, and does not require individual analysis.”
78
court’s view of the suffer or permit to work standard was too broad. For the
reasons discussed below, however, we nonetheless conclude, for two
independently sufficient reasons, that under a proper interpretation of the suffer or
permit to work standard, the trial court’s ultimate determination that there is a
sufficient commonality of interest to support certification of the proposed class is
correct and should be upheld.
First, with respect to part B of the ABC test, it is quite clear that there is a
sufficient commonality of interest with regard to the question whether the work
provided by the delivery drivers within the certified class is outside the usual
course of the hiring entity’s business to permit plaintiffs’ claim of
misclassification to be resolved on a class basis. In the present case, Dynamex’s
entire business is that of a delivery service. Unlike other types of businesses in
which the delivery of a product may or may not be viewed as within the usual
course of the hiring company’s business,34 here the hiring entity is a delivery
company and the question whether the work performed by the delivery drivers
within the certified class is outside the usual course of its business is clearly
amenable to determination on a class basis. As a general matter, Dynamex obtains
the customers for its deliveries, sets the rate that the customers will be charged,
notifies the drivers where to pick up and deliver the packages, tracks the packages,
34
In United States v. Silk, supra, 331 U.S. 704, for example, the United States
Supreme Court divided 5-4 on the question whether truck drivers who delivered
coal for a coal company should properly be considered independent contractors or
employees. (See id. at pp. 716-719 [maj. opn., concluding truck drivers were
independent contractors]; id. at p. 719 (conc. & dis. statement of Black, J.;
Douglas, J.; Murphy, J.) [concluding, on same record, that same truck drivers
should be found to be employees]; id. at pp. 719-722 (conc. & dis. opn. of
Rutledge, J.) [advocating remand to lower courts in view of closeness of employee
or independent contractor issue].
79
and requires the drivers to utilize its tracking and recordkeeping system. As such,
there is a sufficient commonality of interest regarding whether the work performed
by the certified class of drivers who pick up and deliver packages and documents
from and to Dynamex customers on an ongoing basis is outside the usual course of
Dynamex’s business to permit that question to be resolved on a class basis.
Because each part of the ABC test may be independently determinative of
the employee or independent contractor question, our conclusion that there is a
sufficient commonality of interest under part B of the ABC test is sufficient in
itself to support the trial court’s class certification order. (See Brinker Restaurant
Corp. v. Superior Court, supra, 53 Cal.4th at p. 1032 [class certification is not an
abuse of discretion if certification is proper under any theory].) Nonetheless, for
guidance we go on to discuss whether there is a sufficient commonality of interest
under part C of the ABC test to support class treatment of the relevant question
under that part of the ABC test as well.
Second, with regard to part C of the ABC test, it is equally clear from the
record that there is a sufficient commonality of interest as to whether the drivers in
the certified class are customarily engaged in an independently established trade,
occupation, or business to permit resolution of that issue on a class basis As
discussed above, prior to 2004 Dynamex classified the drivers who picked up and
delivered the packages and documents from Dynamex customers as employees
rather than independent contractors. In 2004, Dynamex adopted a new business
structure under which it required all of its drivers to enter into a contractual
agreement that specified the driver’s status as an independent contractor. Here the
class of drivers certified by the trial court is limited to drivers who, during the
relevant time periods, performed delivery services only for Dynamex. The class
excludes drivers who performed delivery services for another delivery service or
for the driver’s own personal customers; the class also excludes drivers who had
80
employees of their own. With respect to the class of included drivers, there is no
indication in the record that there is a lack of commonality of interest regarding
the question whether these drivers are customarily engaged in an independently
established trade, occupation, or business. For this class of drivers, the pertinent
question under part C of the ABC test is amenable to resolution on a class basis.35
For the foregoing reasons, we conclude that under a proper understanding
of the suffer or permit to work standard there is, as a matter of law, a sufficient
commonality of interest within the certified class to permit the question whether
such drivers are employees or independent contractors for purposes of the wage
order to be litigated on a class basis. Accordingly, we conclude that with respect
to the causes of action that are based on alleged violations of the obligations
imposed by the wage order, the trial court did not abuse its discretion in certifying
the class and in denying Dynamex’s motion to decertify the class.
35
Because the certified class excludes drivers who hired other drivers, or who
performed delivery services for other delivery companies or for their own
independent delivery business, we have no occasion to address the question
whether there is a sufficient commonality of interest regarding whether these other
drivers are customarily engaged in an independently established trade, occupation,
or business within the meaning of part C of the ABC test.
81
V. CONCLUSION
For the reasons discussed above, the judgment of the Court of Appeal is
affirmed.
CANTIL-SAKAUYE, C. J.
WE CONCUR:
CHIN, J.
CORRIGAN, J.
LIU, J.
CUÉLLAR, J.
KRUGER, J.
SIGGINS, J.*
*
Associate Justice of the Court of Appeal, First Appellate District, Division
Three, assigned by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
82
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Dynamex Operations West, Inc. v. Superior Court
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 230 Cal.App.4th 718
Rehearing Granted
Opinion No. S222732
Date Filed: April 30, 2018
Court: Superior
County: Los Angeles
Judge: Michael L. Stern
Counsel:
Littler Mendelson, Robert G. Hulteng, Damon M. Ott, Philip A. Simpkins; Sheppard Mullin Richter &
Hampton, Paul S. Cowie; DLA Piper and Ellen M. Bronchetti for Petitioner.
Orrick, Herrington & Sutcliffe, Andrew R. Livingston, Michael Weil, Lauri Damrell and Kathryn G.
Mantoan for California Employment Law Council and Employers Group as Amici Curiae on behalf of
Petitioner.
Horvitz & Levy, John A. Taylor, Jeremy B. Rosen, Felix Shafir and David W. Moreshead for Chamber of
Commerce of the United States of America and California Chamber of Commerce as Amici Curiae on
behalf of Petitioner.
No appearance for Respondent.
Pope, Berger & Williams, Pope, Berger, Williams Reynolds, A. Mark Pope; Glancy Binkow & Goldberg,
Glancy Prongay & Murray, Kevin F. Ruf; Boudreau Williams, Williams Iagmin and Jon R. Williams for
Real Parties in Interest.
Della Barnett, R. Erandi Zamora; Anthony Mischel; Cynthia L. Rice, William G. Hoerger and Jean H. Choi
for California Rural Legal Assistance Foundation, National Employment Law Project, Los Angeles
Alliance for a New Economy, La Raza Centro Legal, Legal Aid Society-Employment Law Center, Asian
Americans Advancing Justice-LA, Asian Americans Advancing Justice-ALC, The Impact Fund, Alexander
Community Law Center, UCLA Center for Labor Research, Women’s Employment Rights Clinic and
Worksafe as Amici Curiae on behalf of Real Parties in Interest.
Duckworth Peters Lebowitz Olivier and Monique Olivier for California Employment Lawyers Association
as Amicus Curiae on behalf of Real Parties in Interest.
Page 2 – S1222732 – counsel continued
Counsel:
Judith A. Scott; Altshuler Berzon, Michael Rubin, Barbara J. Chisholm, P. Casey Pitts; Nicole G. Berner;
Nicholas W. Clark; and Bradley T. Raymond for Service Employees International Union, United Food and
Commercial Workers International Union and International Brotherhood of Teamsters as Amici Curiae on
behalf of Real Parties in Interest.
David Balter for Division of Labor Standards Enforcement, Department of Industrial Relations as Amicus
Curiae on behalf of Real Parties in Interest.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Robert G. Hulteng
Littler Mendelson
333 Bush Street, 34th Floor
San Francisco, CA 94104
(415) 433-1940
Kevin F. Ruf
Glancy Prongay & Murray
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
(310) 201-9150
Michael Rubin
Altshuler Berzon
177 Post Street, Suite 300
San Francisco, CA 94108
(415) 421-7151
Opinion Information
| Date: | Docket Number: |
| Mon, 04/30/2018 | S222732 |
