Dynamex Operations West, Inc. v. Superior Court

July 2,
2018

Dynamex Operations West, Inc. v. Superior Court (SC S222732/B249546 rev. granted 1/28/15)

 

On April 30, 2018, the Supreme Court of California quietly filed a decision that carries significant changes to the analysis of whether a worker qualifies as an employee or as an independent contractor.  The extent to which this will impact employers in California cannot be measured, but with the advent of package-delivery, task-based websites, and web-based driving companies, the old standards based on the S.G. Borello & Sons case were bound to be revisited.

 

Dynamex was a package and delivery company that classified its drivers as independent contractors. The class-action lawsuit was brought by 1,800+ drivers who asked the court to reclassify them as employees. Each driver was initially required to show that he/she was an employee. Dynamex drivers customarily use their own cars, cell phones, and expenses, and drivers were free to set their own schedule and make deliveries for other companies. Under Borello, these factors  would point towards an independent contractor status.  However, the Dynamex court opted to disregard Borello in favor of a new, stricter standard that indicates a presumption of “employee” status and that the presumed employer may disprove the presumption ONLY if it can show ALL three of the following:

 

  1. A) 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 performance of the work and in fact; and
  2. B) the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

 

The holding on its face only applies to wage orders and not explicitly to workers’ compensation cases, but practitioners know that, in California, the party who pays the wages is likely an employer even under the old standard.  A logical extension of this decision would be to apply the new 3-part test to establish a presumption of employment in workers’ compensation, thereby broadening the jurisdiction of the Workers’ Compensation Appeals Board and increasing exposure for hiring entities and their insurance companies.

 

In California, independent contractors are not “employees” and are expressly excluded from workers’ compensation benefits.  The implications of the Dynamex case are broad but are also consistent with a general trend towards liberal awards of benefits in California. The factors in Borello & Sons were meant to establish whether the purported employer paid the injured worker or exercised control over the means of performing job duties. While Borrello & Sons dealt specifically with the “Independent contractor versus employee” analysis, the factors have also been applied by courts when determining the liability of general and special employers in joint-and-several liability cases, in which the special employer’s right to control the manner and means may impact the extent of its liability.

 

A fair amount of litigation takes place in certain cases when employment is denied in a workers’ compensation case.  Following the Dynamex decision, the factual inquiry will not change that much as we still look at who controls the manner and means of work.  However, the primary impact of the case is to shift the legal burden of proof from the injured worker to the defendant who is disavowing an employment relationship.

 

I have so many questions about how this will actually play out.  For example, Part A indicates the worker must be “free” from control and direction…”  The court’s use of the word “free” is fairly unambiguous, but it will have to be clarified in subsequent decision-making to allow companies to function. What happens if the worker proposes a 10 a.m. start time and the hirer asks him to be there at 9:30 a.m.?

 

Part B appears to place a higher burden on companies that serve diverse purposes in that they will have a more difficult time proving that the alleged independent contractor is not performing work within its own service offerings.  Insurance carriers may have greater risk when providing workers’ compensation coverage to these highly diversified employers as opposed to a simple bakery that only makes cakes.  This may also make it more difficult for employers to delegate projects to third parties absent clear contracts about employment status or clarifying that the contractor being hired does not engage in the same business as the otherwise presumed employer. Whether that type of contract would hold up or be found void as against public policy will no doubt be tried in the future backdraft of the Dynamex decision.

 

Part C requires the hiring entity to show that the presumed employee is customarily engaged in a business of the same nature as the work being performed.  Identifying whether the presumed employee has an FEIN and whether this presumed employee has his/her own employees may be useful; it may also be useful to as obtain the presumed employee’s payroll or tax records.  But what if, as is often the case with a task-based web applications or rideshare drivers, the injured worker has no  independently established trade, occupation, or business at all?  What if they are otherwise a student or even retired?  It is a significant burden to say the least, and, per this decision, the burden is on the hiring entity or its insurance company.

 

What is certain is that hiring entities will have to now prove all of the above in order to rebut the presumption of employment, which brings our inquiry back to the ground: how can the hiring entity arguing against the presumption of employment establish facts to meet the very significant burden?  A deposition or clear statement from the injured worker is essential. Specific questions about the manner and means of work performance as well as the injured worker’s other occupation or trade must be asked.  All contracts between the hiring entity and presumed employee should be discovered, and hopefully the intent of the parties was made clear with regard to non-employee status.  Witnesses who observed the performance of the work that led to the alleged injury may be relevant, as would any evidence or witnesses tending to show that the injury arose elsewhere.

 

One byproduct of this case may be that hiring entities and their insurers ought to conduct a review of existing policies with insureds who tend to hire independent contractors, rideshare app drivers, and similarly situated workers who may now be classified as employees. Alternatively, and it should be noted that this author is not a coverage specialist, underwriters may want to investigate whether it would be appropriate and enforceable to include a specific limiting endorsement to prevent and/or cover surprise employees should current contractors later be deemed an employee, but there is, at present, no known guidance from the Department of Insurance on this specific issue.

 

Brenna E. Hampton, Office Managing Partner

San Diego office of Hanna Brophy MacLean McAleer & Jensen, LLP