State high court: in misclassification disputes, assume they are employees

In an opinion affirming the class certification of delivery drivers, the state Supreme Court has set a standard for distinguishing between workers who are employees and those who are independent contractors.

According to attorneys involved in the case and those observing it, the affirmation of the employee-presumptive "ABC test" as the California standard for classification will have a far-reaching effect on hundreds of cases disputing the issue.

"It's helpful to employers and workers alike because it cuts through a lot of the confusion and inconsistency that has existed concerning how to distinguish between employees and independent contractors," said Michael Rubin of Altshuler Berzon LLP, who argued for the drivers. "It will be easier for employers and others now to predict outcomes and determine whether someone should be classified as an employee under the Labor Code."

"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," wrote Chief Justice Tani Cantil-Sakauye in the unanimous published opinion, released Monday.

Those conditions are, according to the document, that the worker is free from the control of the hirer, the worker must perform work outside the core purpose of the company and the worker must have an established business independent of the hirer in the same industry.

Rubin called specific attention to the second prong with respect to misclassification cases in the "gig economy" concerning companies such as Uber.

"If you're using an Uber app to get a ride someplace and a driver picks you up, that's part of the core practice of the company. It's going to be very difficult for those app companies to classify their workers as not employees," he said.

In the underlying litigation, a class of delivery drivers for the Dynamex delivery company sued for misclassification. Dynamex then unsuccessfully appealed Los Angeles County Superior Court Judge Michael L. Stern's class certification, saying the judge had applied an incorrect standard in his ruling. When the appellate court sided with Stern, Dynamex petitioned the state Supreme Court.

In affirming the decision, the high court established the ABC standard as the controlling one for worker classification disputes. Dynamex Operations West, Inc., v. Superior Court of Los Angeles County, 2018 DJDAR 3856.

"The California Supreme Court unanimously clarified the law and created a practical, workable test and made that test one that can be readily applied to workers in the new economy," Rubin said.

Robert G. Hulteng of Littler Mendelson PC argued for Dynamex and declined to comment on the opinion.

According to Anthony J. Amendola and Steven M. Schneider of Mitchell Silberberg & Knupp LLP, the new test could cause difficulties for employers because it skews toward employee status.

"Employers are going to have to be very careful in classifying people as independent contractors because under these tests it's more likely than not that most people currently defined as contractors would be found employees," said Amendola.

Schneider said the employee versus contractor distinction is a dated concept incompatible with the post-Uber economy where drivers have freedoms that typically apply to contractors, such as working for competing companies and defining their own hours.

"We've got these Industrial Revolution-era concepts that just don't get shoehorned correctly into the internet gig economy," he said. "At least until this decision they looked to many of us in the employment law community like independent contractors, but it's hard to say now whether that's going to continue."

Aashish Y. Desai of Desai Law Firm said placing the burden of proof on the employer is a boon to class certification.

"For a class action, that's everything," he said. "When you put the burden on the employer, the common question is, 'What did you as an employer do for your workforce? How did you classify this segment as independent contractors?'"

"This is going to have a potentially enormous impact on some of the new economy businesses," said Gina M. Roccanova of Meyers Nave Riback Silver & Wilson PLC. "If your business is delivering food or giving people rides and the people performing that service cannot be independent contractors, I think some of these companies have a big problem because their businesses are based on that assumption."

Schneider, Amendola and Roccanova all said they are advising employer clients to audit their contractor relationships in light of the decision.

Rubin said the decision is protective of employee rights and that it may lead to similar decisions in other states.

"It's a fair result; it's an easily applied one. It's a result that leads to far more certainty than existed before, and it's a result that will mean over the next few months and years that an enormous number of workers in California will properly be reclassified as employees," he said.