As we reported in 2018, the California Supreme Court in
Dynamex Operations W., Inc. v. Superior Ct.,
4 Cal. 5th 903 (2018), adopted a three-part “ABC” test to determine if a worker is to be classified as an employee or independent contractor. Under the ABC test, a worker is presumptively an employee, and the hiring entity bears the burden to show otherwise. Further, the court held that the ABC test is conjunctive, and the hiring entity's failure to establish any of the following three factors precludes a finding that the worker is an independent contractor: “(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; and (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.” (
, at p. 957). The case, however, left a number of unopened questions as to its scope. On October 8, 2019, the California Court of Appeal issued two decisions clarifying the scope of
The first decision,
Gonzales v. San Gabriel Transit, Inc.,
B282377, significantly expands the scope of
in two ways. First, the court held that
applies retroactively, meaning that its holding applies to pending litigation that was initiated before
was decided. The
court explained that "Judicial decisions in civil litigation almost uniformly are given retroactive effect and applied to pending litigation…A rare exception is employed in extraordinary circumstances dictated by considerations of fairness and public policy, such as when a decision articulates a new standard or rule of law. ." The court explained that
had not established new law but, rather only "streamline[d] the existing complex, multifactor wage order analysis" Although the Ninth Circuit recently certified the question as to whether
applies retroactively to the California Supreme Court, until the Supreme Court decides that issue,
is binding law.
by holding that it applies not only to determine employee status under the IWC Wage Orders, but also to "Labor Code claims which are either rooted in one or more wage orders, or predicated on conduct alleged to have violated a wage order." The court explained that "given the fact that wage orders establish basic requirements for such things as wages, hours and working conditions, the Supreme Court's holding that the ABC test should be applied to determine employee status under the wage orders can only mean that the same test applies to Labor Code claims seeking to enforce or advance the wage order requirements and their basic workplace protections. Because most of the statutory claims alleged here are rooted in wage order protections and requirements, the ABC test must be applied to those claims to resolve the employee vs. independent contractor issues." Although AB 5 already applies
to Labor Code claims beginning January 1, 2020, because of its retroactivity holding, the
decision affects pending wage and hour cases and those filed prior to January 1, 2020.
In the second decision,
Henderson v. Equilon Enterprises, LLC
, A151626, the Court of Appeal held that
does not apply to the question of whether entities are joint employers. In that case, Henderson brought a civil action for wage and hour violations against defendant and respondent Equilon Enterprises, LLC, doing business as Shell Oil Products US (Shell), under a “joint employer” theory of liability alleging claims for failure to pay overtime compensation, failure to pay for missed break periods, and unfair business practices. Henderson alleged he had been employed as the station manager of several Shell-owned gasoline stations operated by Danville Petroleum, Inc, but admitted that he never worked directly for Shell. The trial court found Shell was not Henderson's joint employer and granted Shell's motion for summary judgment. The appellate court affirmed.
The court held that the ABC test in
does not apply to the determination of whether an entity is a joint employer. The court explained: "
was concerned with the problem of businesses misclassifying workers as independent contractors so that the business may obtain economic advantages that result from the avoidance of legal and economic obligations imposed on an employer by the wage order and other state and federal requirements." The court reasoned that those policy concerns are not present in wage and hour claims arising under a joint employer theory of liability since in those cases the worker is an admitted employee of a primary employer, and is subject to the protection of applicable labor laws and wage orders. Rather, the court of appeal held that the applicable test remains the one set forth in
Martinez v. Combs
, 49 Cal. 4th 35 (2010), where the Supreme Court concluded “the IWC's wage orders do generally define the employment relationship, and thus who may be liable, and held that “To employ, then, under the IWC's definition, has three alternative definitions. It means: (a) to exercise control over the wages, hours, or working conditions or (b) to suffer or permit to work or (c) to engage,” which the Supreme Court construed as the common law definition of an employment relationship.
Given the many questions that both
and AB5 left open, we expect that we will continue to see more published opinions in this area.
If you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at 818-508-3700 or visit us online at
Richard S. Rosenberg
Katherine A. Hren
Ballard Rosenberg Golper & Savitt, LLP