Independent Contractors vs Employees

The Second Appellate Division of the California Court of Appeal, in the March 26, 2021 case of Erick v. East Coast Transportation, Inc., determined that the Plaintiffs were truck owner/operators who performed work as independent contractors for East Coast Transport, Inc. (East Coast). East Coast is a company that arranges for the pick-up and delivery of goods from Los Angeles area ports to nearby locations. Plaintiff’s sued their employer claiming they were actually employees rather than independent contractors and were being wrongfully denied the statutory protections and benefits given to employees, such as rest breaks, meal breaks, reimbursement of expenses, and itemized pay stubs.  The trial court ruled that the standard for an employer to use for determining whether a worker is an independent contractor or an employee is the “ABC test” from the California Supreme Court case of Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, but also stated the “ABC test” did not apply retroactively.  The Appellate Court disagreed and sent the case back to the trial court for a new trial based on the retroactive application of the ABC test.

The Dynamex case held that a three-factor test, or the “ABC Test”, should be used to determine if a worker qualifies as an independent contractor for purposes of California’s wage orders which established many entitlements for employees. Subsequent to the Dynamex ruling, our California Supreme Court has further decided that the Dynamex “ABC Test” should be applied retroactively to all cases that were not yet final at the time of the Dynamex decision.  (Vazquez v. Jan-Pro Franchising International (2021) 10 Cal.5th 944).

The Dynamex “ABC Test” contains three requirements which the employer has the burden to show that a worker is an independent contractor as opposed to an employee.  Those “ABC Test” factors are, “(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the 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.”

The Appellate Court also noted the disadvantages of a multifactor test, such as the one applied in the context of workers’ compensation under Borello, and concluded the comparatively simple “ABC Test” was preferable for California wage orders. (Dynamex, supra, 4 Cal.5th at p. 957.)  The Appellate Court also cited to Gonzales v. San Gabriel Transit, Inc. (2019) 40 Cal.App.5th 1131, 1157, which found the the “ABC Test” applies to Labor Code claims which are either based in one or more wage orders, or on conduct claimed to have violated a wage order.” However, the multi-factor Borello test applies to other Labor Code claims as the proper standard for determining non-wage-order claims.

In California, employers run the risk of significant fines and penalties for the misclassification of its workers as independent contractors rather than employees.  The attorneys at the Law Offices of Borton Petrini, LLP can assist employers in navigating through the legal challenges to arrive at the proper classification for its work force.

 

 

 

Jeff Dains is a Partner in our San Bernardino office and practices in business litigation, construction law and real estate law.

 

 

Legal Disclaimer: This article is designed for general information only. The information presented should not be construed to be formal legal advice, nor the formation of a lawyer/client relationship.