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California Supreme Court Issues Landmark Ruling Which Upends Independent Contractor v. Employee Test


Earlier this week, the California Supreme Court issued a ruling in Dynamex Operations West, Inc. v. Charles Lee, et al., and in doing so, established a new test to determine whether a worker is an independent contractor or an employee.  

The case revolved around a claim by two delivery drivers that claimed Dynamex (a nationwide package and document delivery company) misclassified its delivery drivers as independent contractors rather than employees.  Apparently, prior to 2004, Dynamex classified its drivers as employees (who performed similar pickup and delivery work as its current drivers performed).  That changed in 2004 when Dynamex adopted a new policy and considered all drivers to be independent contractors rather than employees.

In the lower courts, the workers prevailed.  However, Dynamex appealed.  In the California Supreme Court's ruling on Monday, the Court made a landmark ruling that could turn the tide in how successful workers are going forward when presenting similar claims.  In the Court's ruling, an "ABC test" was established to determine whether a worker was an independent contractor or an employee.  The ABC test stipulates that a worker must be considered an employee unless:  a) the worker is "free from control and direction over performance of the work"; b) the work is "outside the usual course of business for which the work is performed"; and c) the worker is "customarily engaged in an independently established trade, occupation or business."

Based upon this new standard created by the California Supreme Court (and currently used in other states such as Illinois and New Jersey), labor advocates and pro-employee groups have hailed the Court's decision as an opportunity for workers that claim they are misclassified as independent contractors a better likelihood of prevailing upon their claims.  

The question now turns to how companies like Uber, Lyft, GrubHub, and other gig economy related employers will handle this new ABC test.  For employers that have built their business model around the use of independent contractors, this ruling and new standard could threaten that business model going forward.  Of course employers could choose to classify their workers as employees and avoid a protracted legal dispute over independent contractor versus employee classification...however, I suspect many employers will be resistant to that idea and instead be faced with trying to combat the ABC test or simply closing up shop. 


For a copy of the Court's opinion:  http://www.courts.ca.gov/opinions/documents/S222732.PDF

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