As easy as “ABC,” but not exactly in California

Some good news for companies: A California Court of Appeal decision further confirmed that Dynamex's three-pronged "ABC" test for determining independent contractor status is limited to Industrial Welfare Commission wage order claims.

Properly classifying independent contractors is critical for any business. Misclassification can result in costly and time-consuming litigation.

Earlier this year, the California Supreme Court in Dynamex Operations West v. Superior Court, 2018 DJDAR 3856 (Cal. April 30, 3018), abandoned the familiar eleven-factor Borello test and adopted a three-pronged "ABC" test for determining independent contractor status under Industrial Welfare Commission wage order claims. Per the ABC test, a worker is presumed an employee unless the hirer shows that: (a) the worker performed her work free from the hirer's direction and control; (b) the worker performed work outside the usual course of the hirer's business; and (c) the worker was engaged in an independently established trade, occupation, or business. In adopting the ABC test for wage order claims, the Supreme Court "recognized that different standards could apply to different statutory claims...," leaving open the possibility that the ABC test had limits.

Last month, one of those limits was tested in Jesus Cuitlahuac Garcia v. Border Transportation Group, LLC, et al., 2018 DJDAR 10354 (Cal. App. 4th Dist. Oct 22, 2018). In this case, the California Court of Appeal confirmed that the "ABC" test only applies to Industrial Welfare Commission wage order claims, and that Borello was still the standard in most other instances.

In Garcia, a taxi driver sued Border Transportation Group, the company he drove for, alleging wage order claims, like failure to pay minimum wage, and non-wage-order claims, like wrongful termination in violation of public policy. In granting summary judgment for BTG, the trial court applied the Borello test to both his wage order and non-wage order claims and concluded that Garcia was an independent contractor. Garcia appealed.

Pending Garcia's appeal, the California Supreme Court decided Dynamex, so he argued that the more limited ABC test should apply. The Fourth Appellate District agreed and applied the ABC test to Garcia's wage order claims. Focusing on the third prong, BTG needed to show that Garcia actually "provided services for other entities 'independently' of his relationship with BTG." Concluding that BTG failed to make such a showing, the court reversed summary judgment on his wage order claims.

Despite applying the ABC test to Garcia's wage order claims, the court declined to apply it to his non-wage-order claims. The court explained that "Dynamex did not purport to replace the Borello standard in every instance." Insofar as the claims are not governed by a wage order, "the Borello standard is the applicable standard for determining whether a worker is properly" classified. As a result, the Borello test still applies to non-wage-order claims.

Even though the ABC test only applies to wage order claims, hirers should proceed with caution and also view their independent contractor status questions through the ABC lens. Taking such an approach could help mitigate against time consuming and expensive litigation.