California Adopts Massachusetts Test for Classifying Workers as Independent Contractors

California

 

Last week, in  Dynamex Operations West Inc. v. The Superior Court of Los Angeles County, Charles Lee et al, Case No. S222732, the California Supreme Court discarded a thirty year old standard for classifying workers as employees or independent contractors and adopted a new standard — the ABC test — for determining if a workers is an employee or independent contractor.  The Court abandoned the test that was set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989) and adopted a modified ABC test based on Massachusetts General Laws chapter 149, §148B. In Dynamex, the Court said:

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.

By adopting a new standard, any company that engages with independent contractors in California should review their relationship and reclassify any workers who do not meet the new standard. Part A, free from the control of the hirer; and Part C, customarily engaged in an independently established trade or business, are familiar and similar to parts of existing tests. However the questions as to whether a service is outside the usual course of a company’s business may require additional interpretation. The Court attempted to address this issue and said:

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 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 within the hiring entity’s usual business operations is more like that of an employee than that of an independent contractor.

These examples are relatively clear to understand and follow but they don’t address more nuanced situations. The Court provided further guidance in footnote 29 when it said:

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 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].

In general, these additional examples are helpful but the Vermont case raises additional questions. If specialized historic work is outside the usual course of a construction company’s business, are specialized software developers outside the usual course of business of a software development company? If a divorce layer needs to engage a tax lawyer to address a particularly complex tax question, is that in usual course of the divorce lawyer’s business because they are both practicing law or is his/her usual course of business divorce law? Would you feel comfortable with a podiatrist removing your thyroid because they are both in the business of “practicing medicine”? The standard “outside the usual course of the hiring entity’s business” leads to questions about what is the usual course of a company’s business.

The ABC standard which has been in  place for wage and hour claims in Massachusetts for years. Looking at how Massachusetts has interpreted the “usual course of business” provides some guidance of what the usual course of business is.  For example,

These cases show that interpreting what the “usual course of business” may be not be as easy as it initially sounds.  The California Supreme Court makes it clear that workers who perform the same jobs as employees are going to be considered employees but that opens up the question as to what the same job its. Unless the legislature steps into address the situation, the future of litigation in California for independent contractor classification may evolve around what is a company’s “usual course of business.”

 

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