Independent Contractor or Employee? Why It Matters

In 2018, the California Supreme Court adopted the ABC Test for determining whether workers are independent contractors in the seminal case of Dynamex Operations W., Inc. v. Superior Court (2018) 4 Cal.5th 903. That test, generally speaking, is more favorable for workers because it requires hiring entities to prove that a worker (A) is free from the control and direction of the hirer; (B) performs work outside of the hiring entity’s business; and (C) is engaged in an independently established trade, occupation, or business. Otherwise the worker must be classified as an employee.

In adopting the ABC Test, the Dynamex Court noted that misclassification of workers as independent contractors is a very serious problem that, if unchecked, would “depriv[e] federal and state governments of billions of dollars in tax revenue and millions of workers of the labor law protections to which they are entitled.” That statement could not be more true, and this blog post explores just why that is so.

Misclassification deprives workers of their fundamental rights

As a preliminary matter, independent contractors (ICs) are not subject to the same wage and hour laws as employees (EEs). For example, ICs are not guaranteed a minimum wage, overtime, or meal and rest periods. Similarly, ICs do not have the right to a workplace that is free from harassment and discrimination. Nor do ICs have the right a safe workplace, or to form a union.

ICs also generally do not qualify for workers’ compensation if they get hurt on the job, or unemployment insurance if they get laid off.

Misclassification harms women and people of color

Furthermore, misclassification disproportionately harms women and people of color. Think about the industries where misclassification is most common: construction, home health care, shipping and delivery, driver services (like Uber and Lyft), and janitors. Those are also the industries in which women and people of color are disproportionately represented. According to one study, seven out of eight occupations in which misclassification is common are held mainly by women and people of color. See Alexander, Charlotte S., 2017, “Misclassification and Antidiscrimination: An Empirical Analysis,” Minn. Law Rev. 101, no. 3 (February 2017).

Misclassification shifts the burden to state and local governments

When companies convert EEs into ICs, they drastically reduce the amount of money that they have to pay by way of employment-based taxes. For example, employers are required to pay taxes that help to fund Social Security and Medicare. They also have to help pay for unemployment insurance and workers compensation. According to the Economic Policy Institute, these taxes and benefits “can add as much as 30% or more to a worker’s total costs.” See “Misclassification, the ABC test, and employee status” (June 16, 2021, Lynn Rhinehart, et al.

Companies that utilize ICs do not pay into the social safety net in this same manner. As a result, they effectively shift the cost of these important benefit programs to the taxpayers.

The misclassification ripple effect

Finally, misclassification makes it harder for companies that want to do the right thing and pay their employees a living wage. When a company misclassifies an employee as an IC, it gains an unfair advantage over its competitors. Even though it is illegal to do so, those companies are able to slash their overhead. This forces the companies competing with them to also reduce their costs. As a result, misclassification effectively pressures other businesses to follow suit.

The ABC Test and the future fight against misclassification

California is not alone: As of January 2022, many states have adopted the ABC Test. At the same time, companies like Uber, Lyft, and DoorDash have done everything they can to try and avoid treating workers as EEs under the law. This includes ballot initiatives like California’s Proposition 22, which sought to exclude app-based drivers from California’s wage and hour laws. The fight is therefore far from over

If you think that you may be misclassified as an Independent Contractor, please feel free to contact the experienced attorneys at Hunter Pyle Law for a free and confidential intake process. We can be reached at inquire@hunterpylelaw.com, or at (510) 444-4400.

Are taxi drivers independent contractors under Dynamex’s ABC Test?

Whether an individual is an employee or independent contractor has become a hotly disputed legal topic. This classification is important because independent contractors do not receive employment-related protections, such as the right to minimum and overtime wages, the prohibition against discrimination, and workers’ compensation.

In Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 (Dynamex) the California Supreme Court provided a new method for determining if an individual is an employee when pursuing claims under California’s Wage Orders. Following Dynamex, an appellate court analyzed whether taxi drivers are employees under the new ABC test articulated in Dynamex. See Garcia v. Border Transportation Group, LLC (2018) 28 Cal.App.5th 558 (Garcia).

Facts of the Case

In Garcia, the Plaintiff was a former taxi driver who worked for the Border Transportation Group, LLC (BTG). BTG’s business model was to lease out taxi permits through subsidiaries to drivers. BTG’s lease agreement expressly stated that Plaintiff was an independent contractor. Furthermore, Plaintiff’s vehicle contained a BTG subsidiary’s, Calexico Taxi, color scheme and logo. Last, BTG permitted Plaintiff to set his own work hours, use the taxi for personal errands, keep his own fares, enter sublease agreements, and advertise under his own name.

Procedural History

In 2014, Plaintiff sued BTG, and other related entities, for various wage and hour violations and wrongful termination. The wage and hour violations included claims for unpaid wages, failure to pay minimum and overtime wages, failure to provide meal and rest breaks, failure to furnish accurate wage statements, waiting time penalties, and violations of the Unfair Competition Law. The trial court granted summary judgment in favor of BTG, and held that BTG did not exercise the requisite control required to establish an employment relationship. While Plaintiff was appealing the trial court’s order, the California Supreme Court decided Dynamex.

Appellate Court’s Ruling

On appeal, the Fourth District Court of Appeal applied Dynamex’s ABC test to determine if Plaintiff was an employee or independent contractor. After applying the ABC test, the appellate court held that summary judgment was inappropriate for Plaintiff’s Wage Order claims. To support its ruling, the appellate court discussed the differences between the old control test applied in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 38 Cal.3d 341 (Borello) and the new ABC test in Dynamex.

The appellate court noted that under Borello “[t]he principal test of an employment relationship is whether the person to whom the services is rendered has the right to control the manner and means of accomplishing the result desired…” Borello, supra, 48 Cal.3d at p. 351. In addition to control, other factors are considered, such as:

  1.   whether the one performing services is engaged in a distinct occupation or business;
  2.   the kind of occupation, with reference to whether, in the locality, the work is usually done    under the direction of the principal or by a specialist without supervision
  3.   the skill required in the particular occupation;
  4.   whether the principal or the worker supplies the instrumentalities, tools, and the place of    work for the person doing the work;
  5.   the length of time for which the services are to be performed;
  6.   the method of payment, whether by the time or by the job;
  7.   whether or not the work is a part of the regular business of the principal; and
  8.   whether or not the parties believe they are creating the relationship of employer and            employee. Garcia, supra, 28 Cal.App.5th at p. 567.

The new ABC test differs in key aspects from the control test. Under the ABC test, an individual is presumed to be an employee unless the hiring entity establishes each of the following:

The appellate court focused on Part C of the test. Part C analyzes whether the worker has actually chosen to go into business for himself or herself. To satisfy Part C, it is important that an individual is actually engaged in an independent business, not that the fact that an individual had the opportunity to pursue such an activity.

In Plaintiff’s case, his taxi permit was limited to providing services for a specific company. If Plaintiff chose to provide services to a different company, he would need a new permit bearing the new company’s name. Furthermore, BTG did not provide evidence that Plaintiff provided services for other entities or operated an independent business. Thus, summary judgment was inappropriate because BTG did not meet its burden to establish that the Plaintiff engaged in an independent business.

Conclusion

Although the appellate court held that Plaintiff may be an employee, it limited its ruling to Plaintiff’s Wage Order claims. The appellate court emphasized that because Plaintiff’s claim for wrongful termination was not related to a Wage Order, Plaintiff failed to establish that he was an employee for the wrongful termination and other non-Wage Order claims.

 

If you have questions about whether you are an employee or independent contractor, please feel to contact Hunter Pyle Law at (510) 444-4400 or inquire@hunterpylelaw.com.

 

Employer Unlawfully Denies Truck Drivers Reimbursement by Misclassifying Them as Independent Contractors

Seacon Logix, Inc. (Seacon) transports cargo from the Port of Long Beach and the Port of Los Angeles to warehouses or other facilities. Seacon hired and unlawfully classified its truck drivers as independent contractors rather than employees. Seacon had its drivers complete and sign various documents, includingGear-and-Gavel_gold an agreement which provided that the drivers were independent contractors or subcontractors.

Seacon then leased its trucks to the drivers. Because the company classified the drivers as independent contractors, it deducted lease and insurance payments, and fuel and repair expenses from the truckers’ paychecks.

The truck drivers filed a class action lawsuit against Seacon. The plaintiffs alleged that they should have been classified as employees and that Seacon should not have deducted truck lease payments or insurance premiums from their paychecks. (more…)

Halliburton Pays $18.3 Million in Overtime Wages to More than 1,000 of its Employees

On Tuesday, September 22, 2015, oil and gas service provider Halliburton entered into a settlement agreement with the Department of Labor.  Halliburton agreed to pay $18,293,557 in overtime wages to 1,016 employees nationwide.Gear-and-Gavel_gold

Halliburton misclassified employees in 28 job positions as exempt.  These positions included field service representatives, pipe recovery specialists, drilling tech advisors, perforating specialists and reliability tech specialists.  When these employees worked more than forty hours a week, Halliburton failed to pay them overtime wages in violation of the Fair Labor Standards Act (FLSA).  Halliburton also failed keep accurate records of the hours these employees worked.  The company claims to have discovered it misclassified its employees during a self-audit. (more…)

Being Classified as an Independent Contractor Instead of an Employee Denies Workers Important Benefits and Protections Under the Law

There is an increasing trend in this country for employers to misclassify employees as independent contractors. Workers who are misclassified as independent contractors are often denied important benefits and protections under the law, such as minimum wage, overtime compensation, family and medical leave, and Gear-and-Gavel_goldunemployment insurance. (more…)

California Labor Commissioner Ruling that Uber Driver is an Employee is a Potential Big Win for California Employees

The California Labor Commissioner’s ruling this week that Uber drivers must be considered employees, not independent contractors, is a big step forward for the rights of hundreds of thousands of drivers in California. Although this ruling applies only to the driver Barbara Ann Berwick, who brought this complaint, it pavesGear-and-Gavel_gold the way for class action lawsuits that could force the company to fundamentally change the way it does business.  (more…)

A Win for Commissioned Salespeople:  Peabody v. Time Warner Cable, Inc.

In order to be exempt from the overtime requirements of California law (as well as other wage and hour laws such as those requiring meal and rest breaks), commissioned employees must meet two requirements: [1]Gear-and-Gavel_dark-blue

1.      They must earn more than one and half times the applicable minimum wage[2] (“the minimum wage test”).

2.      They must earn at least half of their wages from commissions.

This test therefore poses the following question:  What about employees who, because of their commission structure, earn less than one and a half times the minimum wage in some pay periods?  Are employers allowed to average an employee’s wages across pay periods in order to determine whether they meet the minimum wage test?

The California Supreme Court recently addressed this issue.  In Peabody v. Time Warner Cable, Inc. the Court held that employers may not consider commission payments in other pay periods in order to meet the minimum wage test of the commissioned employee exemption.

(more…)

Ayala v. Antelope Valley: When are “Independent Contractors” really Employees?

On June 30, 2014, in Ayala v. Antelope Valley Newspapers, Inc., the California Supreme Court clarified the appropriate test to use when determining whether “independent contractors” are actually employees for the purposes of California’s wage and hour laws.  The Court also provided a clear road map that lays Gear-and-Gavel_dark-blueout how courts should analyze class actions that raise this issue.  These clarifications are welcome, and should help more plaintiffs achieve class certification in similar cases in the future.

The plaintiffs in Ayala deliver daily newspapers to people who subscribe to the Antelope Valley Press.  Antelope Valley Newspapers, Inc. (Antelope) classifies these delivery men and women (called carriers) as independent contractors, not employees.  As a result, they are deprived of the wage and hour protections to which they would otherwise be entitled.

(more…)

What a Plaintiff Must Show To Win in an Off The Clock Case

“Off the clock” cases are those in which employees are not paid for all of the time they spend working.  California courts have recognized that where an employer has either “actual” or “constructive” notice that an employee is working, the employer must pay the employee for that time.  See Morillion v. Royal Packing Gear-and-Gavel_dark-blueCo. (2000) 22 Cal.4th 575, 585; White v. Starbucks (N.D.Cal.2007) 497 F.Supp.2d 1080, 1083.

“Actual” means that the employer actually knew that the employee was working.  “Constructive” means that the employer should have known that the employee was working.  The constructive prong of this test is important:  It means that an employer cannot avoid its obligation to pay an employee by intentionally ignoring the fact that that employee is working.

A recent decision from the First District Court of Appeal clarifies what a plaintiff must show in order to win in an off the clock case. (more…)

Duran v. U.S. Bank: Statistics Remain an Important and Viable Tool in Achieving Class Certification

On May 29, 2014, the California Supreme Court issued its decision in Duran v. U.S. Bank (2014) S20093.  Class action practitioners throughout the state have been awaiting this decision for some time, hoping that it will provide guidance as to how to properly litigate “misclassification” cases.  (Misclassification cases areGear-and-Gavel_dark-blue those in which the plaintiffs claim that they were improperly exempted from overtime and other wage and hour laws.)

Duran may not have gone as far as some hoped.  However, its most important point is clear:  Statistics remain a viable way to prove both liability and damages in class actions-provided, that is, that the methodology underlying the statistics is sound. (more…)