The Implications of Dynamex Operations West v. Superior Court: California’s Adoption of the ABC Test for Purposes of the Wage Orders 

California

 

Via LexologyWilliam Hays Weissman of Littler Mendelson PC provides an in-depth analysis of the recent California decision that adopted the ABC standard for classifying workers as independent contractors. The first prong is similar to the previous test on whether the hiring entity exercises control over the worker and the third prong is also simliar to the previous test as to whether the worker was engaged as a business but may require more than in the past.  The second prong, however, is unclear and may be hard to satisfy.  William writes:

 

The “B” prong is unclear and likely very hard to satisfy

Howabusinessisdefinedisnotalwaysclear.Thebusinessisoftendefinedfroma“productionfunction” perspective—that is, what it makes. The court provides a couple of overly simplistic examples that belie modernbusinessreality.Forexample,thecourtexplainsthatifaretailstorehiresanoutsideplumberto repairaleakinabathroomandanelectriciantoinstallanewelectricalline,“theservicesoftheplumberor electricianarenotpartofthestore’susualcourseofbusinessasthestorewouldnotreasonablybeseen ashavingsufferedorpermittedtheplumberorelectriciantoprovideservicestoitasanemployee.” Thisstatementraisessomanyquestions.

Forexample,whatisthe“usualcourseofbusiness”ofaretailstore?Thecourtdoesnotsay,anditisnever definedanywhereintheopinion.Ifwedonotknowwhatthatbusinessis,howcananyoneknowwhethera serviceisorisnotintheusualcourseofsuchbusiness?Theanswerofcourseiswejustassumeweknowor gettoguessbasedonthedescription“retailstore”thatitsbusinessis“selling”somekindoftangiblegoods. Thecourt’sanalysisnowsuggeststhatthe“B”prongisbasedonassumingwhatabusinessdoes.

Further, the court says plumber and electrician would “not reasonably be seen” as being in the usual business,butdoesnotsaybywhom?Seenbytheretailstore,bytheworkersatissueorbythegovernment? Theanswerwouldseemtobebytheworker,insofarasheorshecomplainsabouttherelationship,andnext bythegovernment,whichgenerallygetsthefirstpassatdecidinghowtocharacterizetherelationshipwhen thereisadispute.Thatthebusinessandworkerhaveadispute,however,justdemonstratesthatthe“seen” aspectofthisfactorisanentirelysubjectivestandard.

Let’s tweak the facts a bit. What if the retail store is part of a large chain that has its own maintenance staffthatincludesplumbersandelectricians?Aremaintenanceandrepairsthenpartoftheusualbusiness oftheretailstore?Ifso,ifitstillhiresanoutsideplumberorelectrician,doesthatcreateanemployment relationshipunderthe“B”prong?Whatifthatoutsideplumberhashisowntruck,tools,advertising,and other clients? Is he then in business for himself as a “traditional independent contractor” under the “C” prong,particularlyiftheretailstoredoesnot“control”himunderthe“A”prong?Whatiftheelectricianisa  retiredelectricianthathappenstobeafriendofthestoremanager,andofferstofixwhateverelectricalissue existsforasmallfee?Isheanemployeebecausethe“C”prongisnotmetorbecausethe“B”prongisnot met,orboth?Thesekindofpracticalquestionshavenoanswerinthecourt’sopinion.

The court goes on to distinguish the plumber and electrician from the situation where “a clothing manufacturingcompanyhireswork-at-homeseamstressestomakedressesfromclothandpatternssupplied by the company that will thereafter be sold by the company” or “when a bakery hires cake decorators to workonaregularbasisonitscustom-designedcakes…”Thecourtfindthatinthesecases“theworkers arepartofthehiringentity’susualbusinessoperationandthehiringbusinesscanreasonablybeviewedas havingsufferedorpermittedtheworkerstoprovideservicesasemployees.”Thecourtconcludesthatthe seamstresses’andbakers’“rolewithinthehiringentity’susualbusinessoperationsismorelikethatofan employeethanthatofanindependentcontractor.”

Onceagain,thecourt’sconclusionslackanyrealanalysis.Whatdoesitmeantosaythecakedecorators “work on a regular basis?” What work are they performing, and what does regular mean? What if the seamstersmakedressesfordozensofcompanies,andmarketthemselvestosuchcompanies,consistent withthe“C”prong?Dothosefactsmatter?

Whatistellingfromthecourt’ssuperficialexamplesisnotwhatitsays,buteverythingthecourtchosesto omitthatcouldmakethequestiondifficulttoanswer.Byfailingtoaddressanycomplexmodernexamples, thecourtletsitselfoffthehookofhavingtoapplyitstaketotherealworld.

Anotherareaofconcerninthemoderneconomyareservicereferralagenciesthatfacilitatethematchingof independentcontractorswithclientopportunities,orthatprovideindependentcontractorswhoengagethe agencyaccesstoclientopportunities.Thecourtsinotherstateshavereacheddifferentconclusionsonthese kindsofbusinesses,anditisnowunknownhowthatwillplayoutinCalifornia.10

InCurryv.EquilonEnterprises,LLC,11apublishedopinionrenderedonlyafewweeksaftertheCalifornia Supreme Court’s Dynamex opinion, the appellate court addressed the ABC test in the context of a joint employercase.Thecaseinvolvedwhetheranemployeeofacompanythatleasedservicesstationsfrom ShellwasalsoanemployeeofShellunderajointemploymenttheory.ApplyingtheDynamex’scourtanalysis oftheABCtest,theCurrycourtstated:

The“B”factorrequiresanexaminationofwhether“theworkerperformsworkthatisoutsidethe usualcourseofthehiringentity’sbusiness.”(SeeDynamex,supra,2018Cal.LEXIS3162,*90.)For example,ifabakeryhirescakedecoratorstoworkonaregularbasis,thenthosecakedecorators arelikelyworkingwithinthebakery’s“usualbusinessoperation,”andthuswouldbeemployees. Whereas an electrician hired to work at a bakery would likely be viewed as not working within thebakery’susualcourseofbusinessandthereforewouldnotbeviewedasanemployee.

WeconcludedantethatCurrywasengagedinthedistinctoccupationofanARSstationmanager. We also concluded ante that Curry’s “management of two gas stations was part of ARS’s regular businessbecauseARS’sbusinessinvolvedoperatinggasstations.”Weexplainedthat“Shellwasnot inthebusinessofoperatingfuelingstations—itwasinthebusinessofowningrealestateandfuel.” Thus,thereisnotatriableissueoffactastothe“B”factorbecausemanagingafuelstationwasnot thetypeofbusinessinwhichShellwasengaged.12(Id.at*22-23.)

This published opinion suggests that it is possible to draw distinctions between two businesses, and thus could support arguments for referral agency or platform-type businesses. It seems likely the lack of any controlbyShellovertheworker’sjobduties(the“A”prong)waslikelysignificantinhowthecourtevaluated the“B”prongaswell.Whilethatmightbodewellforreferral-typebusinesses,thisisonlyoneappellatecourt opinion.Giventhegrowingimportanceofsuchabusinessmodeltothemoderneconomy,thisareaislikely togarnersignificantlitigationoverthenextfewyears.

Read the full story at  The Implications of Dynamex Operations West v. Superior Court: California’s Adoption of the ABC Test for Purposes of the Wage Orders | Littler Mendelson P.C.

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