CANTIL-SAKAUYE, C.J. —
Under both California and federal law, the question whether an individual worker should properly be classified as an employee or, instead, as an independent contractor has considerable significance for workers, businesses, and the public generally.
Although in some circumstances classification as an independent contractor may be advantageous to workers as well as to businesses, the risk that workers who should be treated as employees may be improperly misclassified as independent contractors is significant in light of the potentially substantial economic incentives that a business may have in mischaracterizing some workers as independent contractors. Such incentives include the unfair competitive advantage the business may obtain over competitors that properly classify similar workers as employees and that thereby assume the fiscal and other responsibilities and burdens that an employer owes to its employees. In recent years, the relevant regulatory agencies of both the federal and state governments have declared that the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving 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.
The issue in this case relates to the resolution of the employee or independent contractor question in one specific context. Here we must decide what standard applies, under California law, in determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders, which impose obligations relating to the minimum
In the underlying lawsuit in this matter, two individual delivery drivers, suing on their own behalf and on behalf of a class of allegedly similarly situated drivers, filed a complaint against Dynamex Operations West, Inc. (Dynamex), a nationwide package and document delivery company, alleging that Dynamex had misclassified its delivery drivers as independent contractors rather than employees. The drivers claimed that Dynamex's alleged misclassification of its drivers as independent contractors led to Dynamex's violation of the provisions of Industrial Welfare Commission wage order No. 9, the applicable state wage order governing the transportation industry, as well as various sections of the Labor Code, and, as a result, that Dynamex had engaged in unfair and unlawful business practices under Business and Professions Code section 17200.
Prior to 2004, Dynamex classified as employees drivers who allegedly performed similar pickup and delivery work as the current drivers perform. In 2004, however, Dynamex adopted a new policy and contractual arrangement under which all drivers are considered independent contractors rather than employees. Dynamex maintains that, in light of the current contractual arrangement, the drivers are properly classified as independent contractors.
After an earlier round of litigation in which the trial court's initial order denying class certification was reversed by the Court of Appeal (Lee v. Dynamex, Inc. (2008) 166 Cal.App.4th 1325 [83 Cal.Rptr.3d 241]), the trial court ultimately certified a class action embodying a class of Dynamex drivers who, during a pay period, did not themselves employ other drivers and did not do delivery work for other delivery businesses or for the drivers' own personal customers. In finding that the relevant common legal and factual issues relating to the proper classification of the drivers as employees or as independent contractors predominated over potential individual issues, the trial court's certification order relied upon the three alternative definitions of "employ" and "employer" set forth in the applicable wage order as discussed in this court's then-recently decided opinion in Martinez v. Combs (2010) 49 Cal.4th 35, 64 [109 Cal.Rptr.3d 514, 231 P.3d 259] (Martinez). As described more fully below, Martinez held that "[t]o employ ... under the [wage order], has three alternative definitions. It means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or
In response to the trial court's denial of Dynamex's subsequent motion to decertify the class, Dynamex filed the current writ proceeding in the Court of Appeal, maintaining that two of the alternative wage order definitions of "employ" relied upon by the trial court do not apply to the employee or independent contractor issue. Dynamex contended, instead, that those wage order definitions are relevant only to the distinct joint employer question that was directly presented in this court's decision in Martinez — namely whether, when a worker is an admitted employee of a primary employer, another business or entity that has some relationship with the primary employer should properly be considered a joint employer of the worker and therefore also responsible, along with the primary employer, for the obligations imposed by the wage order.
The Court of Appeal rejected Dynamex's contention, concluding that neither the provisions of the wage order itself nor this court's decision in Martinez supported the argument that the wage order's definitions of "employ" and "employer" are limited to the joint employer context and are not applicable in determining whether a worker is a covered employee, rather than an excluded independent contractor, for purposes of the obligations imposed by the wage order. The Court of Appeal concluded that the wage order definitions discussed in Martinez are applicable to the employee or independent contractor question with respect to obligations arising out of the wage order. The Court of Appeal upheld the trial court's class certification order with respect to all of plaintiffs' claims that are based on alleged violations of the wage order.
At the same time, the Court of Appeal concluded that insofar as the causes of action in the complaint seek reimbursement for business expenses such as fuel and tolls that are not governed by the wage order and are obtainable only under section 2802 of the Labor Code,
Dynamex filed a petition for review in this court, challenging only the Court of Appeal's conclusion that the wage order definitions of "employ" and "employer" discussed in Martinez are applicable to the question whether a worker is properly considered an employee or an independent contractor for purposes of the obligations imposed by an applicable wage order. We granted review to consider that issue.
For the reasons discussed below, we agree with the Court of Appeal that the trial court did not err in concluding that the "suffer or permit to work" definition of "employ" contained in the wage order may be relied upon in evaluating whether a worker is an employee or, instead, an independent contractor for purposes of the obligations imposed by the wage order. As explained, in light of its history and purpose, we conclude that the wage order's suffer or permit to work definition must be interpreted broadly to treat as "employees," and thereby provide the wage order's protection to, all workers who would ordinarily be viewed as working in the hiring business. At the same time, we conclude that the suffer or permit to work definition is a term of art that cannot be interpreted literally in a manner that would encompass within the employee category the type of individual workers, like independent plumbers or electricians, who have traditionally been viewed as genuine independent contractors who are working only in their own independent business.
For the reasons explained hereafter, we conclude that in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the "ABC" test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of
Although, as we shall see, it appears from the class certification order that the trial court may have interpreted the wage order's suffer or permit to work standard too literally, we conclude that on the facts disclosed by the record, the trial court's certification order is nonetheless correct as a matter of law under a proper understanding of the suffer or permit to work standard and should be upheld.
Accordingly, we conclude that the judgment of the Court of Appeal should be affirmed.
We summarize the facts as set forth in the prior Court of Appeal opinions in this matter, supplemented by additional facts set forth in the record.
Dynamex is a nationwide same-day courier and delivery service that operates a number of business centers in California. Dynamex offers on-demand, same-day pickup and delivery services to the public generally and also has a number of large business customers — including Office Depot and Home Depot — for whom it delivers purchased goods and picks up returns on a regular basis. Prior to 2004, Dynamex classified its California drivers as employees and compensated them pursuant to this state's wage and hour laws. In 2004, Dynamex converted all of its drivers to independent contractors after management concluded that such a conversion would generate economic savings for the company. Under the current policy, all drivers are treated as independent contractors and are required to provide their own vehicles and pay for all of their transportation expenses, including fuel, tolls, vehicle maintenance, and vehicle liability insurance, as well as all taxes and workers' compensation insurance.
Dynamex obtains its own customers and sets the rates to be charged to those customers for its delivery services. It also negotiates the amount to be paid to drivers on an individual basis. For drivers who are assigned to a dedicated fleet or scheduled route by Dynamex, drivers are paid either a flat fee or an amount based on a percentage of the delivery fee Dynamex receives from the customer. For those who deliver on-demand, drivers are generally paid either a percentage of the delivery fee paid by the customer on a per delivery basis or a flat fee basis per item delivered.
In the absence of any special arrangement between Dynamex and a customer, drivers are generally free to choose the sequence in which they will make deliveries and the routes they will take, but are required to complete all assigned deliveries on the day of assignment. If a customer requests, however, drivers must comply with a customer's requirements regarding delivery times and sequence of stops.
Drivers hired by Dynamex are permitted to hire other persons to make deliveries assigned by Dynamex. Further, when they are not making pickups or deliveries for Dynamex, drivers are permitted to make deliveries for another delivery company, including the driver's own personal delivery business. Drivers are prohibited, however, from diverting any delivery order received through or on behalf of Dynamex to a competitive delivery service.
Drivers are ordinarily hired for an indefinite period of time but Dynamex retains the authority to terminate its agreement with any driver without cause, on three days' notice. And, as noted, Dynamex reserves the right, throughout the contract period, to control the number and nature of deliveries that it offers to its on-demand drivers.
In January 2005, Charles Lee — the sole named plaintiff in the original complaint in the underlying action — entered into a written independent contractor agreement with Dynamex to provide delivery services for Dynamex.
In essence, the underlying action rests on the claim that, since December 2004, Dynamex drivers have performed essentially the same tasks in the same manner as when its drivers were classified as employees, but Dynamex has improperly failed to comply with the requirements imposed by the Labor Code and wage orders for employees with respect to such drivers. The complaint alleges five causes of action arising from Dynamex's alleged misclassification of employees as independent contractors: two counts of unfair and unlawful business practices in violation of Business and Professions Code section 17200, and three counts of Labor Code violations based on Dynamex's failure to pay overtime compensation, to properly provide itemized wage statements, and to compensate the drivers for business expenses.
The trial court's initial order denying class certification was reversed by the Court of Appeal based on the trial court's failure to compel Dynamex to provide contact information for potential putative class members that would enable plaintiffs to establish the necessary elements for class certification. (See Lee v. Dynamex, Inc., supra, 166 Cal.App.4th 1325, 1336-1338.) After the trial court permitted plaintiffs to file a first amended complaint adding Pedro Chevez (a former Dynamex dedicated fleet driver) as a second named plaintiff and the parties stipulated to the filing of a second amended complaint (the current operative complaint), the parties agreed to send questionnaires to all putative class members seeking information that would be relevant to potential class membership.
Based on the responses on the questionnaires that were returned by current or former Dynamex drivers, plaintiffs moved for certification of a revised class of Dynamex drivers. As ultimately modified by the trial court, the proposed class includes those individuals (1) who were classified as independent contractors and performed pickup or delivery service for Dynamex between April 15, 2001, and the date of the certification order, (2) who used their personally owned or leased vehicles weighing less than 26,000 pounds, and (3) who had returned questionnaires which the court deemed timely and complete. The proposed class explicitly excluded, however, drivers for any pay period in which the driver had provided services to Dynamex either as an employee or subcontractor of another person or entity or through the driver's own employees or subcontractors (except for substitute drivers who provided services during vacation, illness, or other time off). Also excluded were drivers who provided services concurrently for Dynamex and for another
On May 11, 2011, the trial court, in a 26-page order, granted plaintiffs' motion for class certification. The validity of that order is at issue in the present proceeding.
After determining that the proposed class satisfied the prerequisites of ascertainability, numerosity, typicality, and adequacy of class representatives and counsel required for class certification, the trial court turned to the question of commonality — that is, whether common issues predominate over individual issues. Because of its significance to our subsequent legal analysis, we discuss this aspect of the trial court's certification order in some detail.
The trial court began its discussion of the commonality requirement by observing that "`[t]he ultimate question in every [purported class action] is whether, given an ascertainable class, the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.'" The court noted that in examining whether common issues of law or fact predominate, a court must consider the legal theory on which plaintiffs' claim is based and the relevant facts that bear on that legal theory. The court explained that in this case all of plaintiffs' causes of action rest on the contention that Dynamex misclassified the drivers as independent contractors when they should have been classified as employees. Thus, the facts that are relevant to that legal claim necessarily relate to the appropriate legal standard or test that is applicable in determining whether a worker should be considered an employee or an independent contractor.
The court then explained that the parties disagreed as to the proper legal standard that is applicable in determining whether a worker is an employee or an independent contractor for purposes of plaintiffs' claims. Plaintiffs relied on this court's then-recent decision in Martinez, supra, 49 Cal.4th 35, maintaining that the standards or tests for employment set forth in Martinez are applicable in the present context, and that the standard for determining the employee or independent contractor question set forth in this court's decision in Borello, supra, 48 Cal.3d 341 is not the sole applicable standard. Dynamex, by contrast, took the position that the alternative definitions of
In its certification order, the trial court agreed with plaintiffs' position, relying on the fact that the Martinez decision "did not indicate that its analysis was in any way limited to situations involving questions of joint employment." The court found that the Martinez decision represents "a redefinition of the employment relationship under a claim of unpaid wages as follows: `To employ, then, under the IWC's [Industrial Welfare Commission's] definition, has three alternative definitions. It means (a) to exercise control over the wages, hours or working conditions, (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.'" (Quoting Martinez, supra, 49 Cal.4th at p. 64.) The trial court concluded that "[t]hese definitions must be considered when analyzing whether the class members are employees or independent contractors" and thereafter proceeded to discuss separately each of the three definitions or standards set forth in Martinez in determining whether common issues predominate for purposes of class certification.
With regard to the "exercise control over wages, hours or working conditions" test, the trial court stated that "`control over wages' means that a person or entity has the power or authority to negotiate and set an employee's rate of pay" and that "[w]hether or not Dynamex had the authority to negotiate each driver's rate of pay can be answered by looking at its policies with regard to hiring drivers.... [I]ndividual inquiry is not required to determine whether Dynamex exercises control over drivers' wages."
With regard to the suffer or permit to work test, the trial court stated in full: "An employee is suffered or permitted to work if the work was performed with the knowledge of the employer. [Citation.] This includes work that was performed that the employer knew or should have known about. [Citation.] Again, this is a matter that can be addressed by looking at Defendant's policy for entering into agreements with drivers. Defendant is only liable to those drivers with whom it entered into an agreement (i.e., knew were providing delivery services to Dynamex customers). This can be determined through records, and does not require individual analysis."
With regard to the common law employment relationship test referred to in Martinez, the trial court stated that this test refers to the multifactor standard
The trial court then discussed the various Borello factors, beginning with whether the hiring business has the right to control work details. In analyzing this factor, the court stated: "A determination of control of the work details must look to `all meaningful aspects of the business relationship.' [Citation.] For a delivery service, those aspects include obtaining customer/customer service, prices charged for delivery, routes, delivery schedules and billing. Plaintiffs contend that these factors are all controlled by Dynamex because it obtains the customers, maintains a centralized call system, maintains a package tracking system, sets the prices for its services and customers are billed by Dynamex. This is not necessarily borne out by the evidence. Defendants' [supervising officer], Mr. Pople,[
With regard to the "distinct occupation or business" factor, the trial court stated: "A distinct business relates to whether the drivers have the opportunity for profit and loss. [Citation.] Plaintiffs contend that the drivers have no opportunity for profit or loss because they are charged according to standardized rate tables. This may be a misrepresentation of defendants' evidence. Defendant['s supervising officer] testified that it tries to standardize the rates paid to on-demand drivers, however, drivers enter into different compensation arrangements. [Citations.] The opportunity for profit or loss depends on the nature of the agreement negotiated between Dynamex and the particular driver. Each arrangement would have to be reviewed to determine the extent of the driver's opportunity for profit and loss."
With regard to the "who supplies instrumentalities" factor, the court stated: "Defendant admitted that the drivers had to provide the instrumentalities of their work and that this was a classwide policy. This factor is subject to common inquiry."
With regard to the duration of service factor, the court stated: "Defendants concede that the drivers are at-will. [This] [f]actor is also subject to common inquiry."
With regard to the method of payment factor, the court stated: "Defendants identify different payment scenarios: (a) percentage of the fee Dynamex charges its customer for each delivery performed; (b) flat rate per day, regardless of the number of packages delivered; (c) set amount per package, regardless of the size or type of package; (d) flat fee to be available to provide delivery service regardless of whether the Driver's services are used; or (e) a combination of these payment types. [Citation.] These factors vary from driver to driver and raise individualized questions."
Finally, with regard to the "parties' belief regarding the nature of relationship" factor, the court noted that "this factor is given less weight by courts" and stated "[a]ll the drivers signed agreements stating that they were independent contractors. The drivers' belief could reasonably be demonstrated through this classwide agreement."
The court then summarized its conclusion with regard to the Borello standard: "Thus, most of the secondary factors are subject to common proof
With respect to the entire question of commonality, however, the trial court concluded: "Common questions predominate the inquiry into whether an employment relationship exists between Dynamex and the drivers. The first two alternative definitions of `employer' can both be demonstrated through common proof, even if the common law test requires individualized inquiries."
Having found that common issues predominate, the trial court went on to conclude that "[a] class action is a superior means of conducting this litigation." The court stated in this regard: "Given that there is evidence from Plaintiffs that common questions predominate the inquiry into [the] employment relationship[,] managing this as a class action with respect to those claims will be feasible. There appears to be no litigation by individual class members, indicating that they have little interest in personally controlling their claims. Finally, consolidating all the claims before a single court would be desirable since it would allow for consistent rulings with respect to all the class members' claims."
On the basis of its foregoing determinations, the trial court granted plaintiffs' motion for class certification.
In December 2012, Dynamex renewed its motion to decertify the class action that the trial court had certified in May 2011. Dynamex relied upon intervening Court of Appeal decisions assertedly demonstrating that the trial court had erred in relying upon the wage order's alternative definitions of employment, as set forth in Martinez. The trial court denied the renewed motion to decertify the class.
In June 2013, Dynamex filed a petition for writ of mandate in the Court of Appeal, challenging the trial court's denial of its motion to decertify the class. In response, plaintiffs, while disagreeing with Dynamex's claim that the trial court had erred, urged the Court of Appeal to issue an order to show cause and resolve the issues presented in the writ proceeding. The Court of Appeal issued an order to show cause in order to determine whether the trial court erred in certifying the underlying class action under the wage order definitions of "employ" and "employer" discussed in Martinez.
After briefing and argument, the Court of Appeal denied the petition in part and granted the petition in part. The appellate court concluded that the trial
As already noted, Dynamex's petition for review challenged only the Court of Appeal's conclusion that the trial court properly determined that the wage order's definitions of "employ" and "employer" may be relied upon in determining whether a worker is an employee or an independent contractor for purposes of the obligations imposed by the wage order. We granted the petition for review to consider that question.
We begin with a brief review of the relevant provisions of the wage order that applies to the transportation industry. (See Cal. Code Regs., tit. 8, § 11090.)
In describing its scope, the transportation wage order initially provides in subdivision 1: "This order shall apply to all persons employed in the transportation industry whether paid on a time, piece rate, commission, or other basis," except for persons employed in administrative, executive, or professional capacities, who are exempt from most of the wage order's provisions. (Cal. Code Regs., tit. 8, § 11090, subd. 1.)
Thereafter, the additional substantive provisions of the wage order that establish protections for workers or impose obligations on hiring entities relating to minimum wages, maximum hours, and specified basic working conditions (such as meal and rest breaks) are, by their terms, made applicable to "employees" or "employers." (See, e.g., Cal. Code Regs., tit. 8, § 11090, subds. 3 [hours and days of work], 4 [minimum wages], 7 [records], 11 [meal periods], 12 [rest periods].)
Subdivision 2 of the wage order does not contain a definition of the term "independent contractor," and the wage order contains no other provision that otherwise specifically addresses the potential distinction between workers who are employees covered by the terms of the wage order and workers who are independent contractors who are not entitled to the protections afforded by the wage order.
We next summarize the most relevant California judicial decisions, providing a historical review of the treatment of the employee or independent contractor distinction under California law.
The difficulty that courts in all jurisdictions have experienced in devising an acceptable general test or standard that properly distinguishes employees from independent contractors is well documented. As the United States Supreme Court observed in Board v. Hearst Publications (1944) 322 U.S. 111, 121 [88 S.Ct. 1170, 64 S.Ct. 851]: "Few problems in the law have given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent, entrepreneurial dealing. This is true within the limited field of determining vicarious liability in tort. It becomes more so when the field is expanded to include all of the possible applications of the distinction." (Fn. omitted.)
As the above quotation suggests, at common law the problem of determining whether a worker should be classified as an employee or an independent contractor initially arose in the tort context — in deciding whether the hirer of the worker should be held vicariously liable for an injury that resulted from the worker's actions. In the vicarious liability context, the hirer's right to supervise and control the details of the worker's actions was reasonably viewed as crucial, because "`[t]he extent to which the employer had a right to control [the details of the service] activities was ... highly relevant to the question whether the employer ought to be legally liable for them....'" (Borello, supra, 48 Cal.3d 341, 350.) For this reason, the question whether the hirer controlled the details of the worker's activities became the primary common law standard for determining whether a worker was considered to be an employee or an independent contractor.
Prior to this court's 1989 decision in Borello, supra, 48 Cal.3d 341, California decisions generally invoked this common law "control of details" standard beyond the tort context, even when deciding whether workers should be considered employees or independent contractors for purposes of the variety of 20th century social welfare legislation that had been enacted for the protection of employees. Thus, for example, in Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946 [88 Cal.Rptr. 175, 471 P.2d 975] (Tieberg), in determining whether a worker was an employee or independent contractor for purposes of California's unemployment insurance legislation,
In addition to relying upon the control of details test, however, the pre-Borello decisions listed a number of "secondary" factors that could properly be considered in determining whether a worker was an employee or an independent contractor. The decisions declared that a hirer's right to discharge a worker "`at will, without cause'" constitutes "`[s]trong evidence in support of an employment relationship.'" (Tieberg, supra, 2 Cal.3d at p. 949, quoting Empire Star Mines, supra, 28 Cal.2d at p. 43.) The decisions also pointed to the following additional factors, derived principally from section 220 of the Restatement Second of Agency: "(a) whether or not the one performing services is engaged in a distinct occupation or business; (b) 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; (c) the skill required in the particular occupation; (d) whether the principal or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee." (Empire Star Mines, supra, 28 Cal.2d at pp. 43-44; see also Tieberg, supra, 2 Cal.3d at p. 949; Isenberg, supra, 30 Cal.2d at p. 39; Perguica, supra, 29 Cal.2d at p. 860.)
Applying the control of details test and these secondary factors to the differing facts presented by each of the cases, this court found the workers in question to be employees in Tieberg, supra, 2 Cal.3d at pages 949-955 (television writers) and Isenberg, supra, 30 Cal.2d at pages 39-41 (horse racing jockeys), and independent contractors in Perguica, supra, 29 Cal.2d at pages 860-862 (lather hired by farmer to work on newly constructed house) and Empire Star Mines, supra, 28 Cal.2d at pages 44-46 (lessees of remote mining shaft). (See also Tomlin v. California Emp. Com. (1947) 30 Cal.2d 118, 123 [180 P.2d 342] [lessees who placed and serviced vending machines held to be employees]; Twentieth etc. Lites v. Cal. Dept. Emp. (1946) 28 Cal.2d 56, 57-60 [168 P.2d 699] [outside salesmen of advertising signs who were free to work for competitors held to be employees]; Cal. Emp. Com. v. L. A. etc. News Corp. (1944) 24 Cal.2d 421, 424-425 [150 P.2d 186] [deliverers of advertising circular held to be employees].)
In 1989, in Borello, supra, 48 Cal.3d 341, this court addressed the employee or independent contractor question in an opinion that has come to be viewed as the seminal California decision on this subject. Because of the significance of this decision, we review the majority opinion in Borello at length.
The particular controversy in Borello, supra, 48 Cal.3d 341, concerned whether farmworkers hired by a grower to harvest cucumbers under a written "sharefarmer" agreement were independent contractors or employees for purposes of the California workers' compensation statutes. The grower contended that the farmworkers were independent contractors under the control of details test because the workers (1) were free to manage their own labor (the grower did not supervise the picking at all but compensated the workers based on the amount of cucumbers that they harvested), (2) shared the profit or loss from the crop, and (3) agreed in writing that they were not employees.
In rejecting the grower's contentions, the court in Borello summarized its conclusion in the introduction of the opinion as follows: "The grower controls the agricultural operations on its premises from planting to sale of the crops. It simply chooses to accomplish one integrated step in the production of one such crop by means of worker incentives rather than direct supervision. It thereby retains all necessary control over a job which can be done only one way. [¶] Moreover, so far as the record discloses, the harvesters' work, though seasonal by nature, follows the usual line of an employee. In no practical sense are the `sharefarmers' entrepreneurs, operating independent businesses for their own accounts; they and their families are obvious members of the broad class to which workers' compensation protection is intended to apply." (Borello, supra, 48 Cal.3d at p. 345.) On this basis, the court concluded the workers were employees entitled to workers' compensation as a matter of law. (Id. at p. 346.)
In reaching these conclusions, the legal analysis employed by the Borello court is of particular significance. The court began by recognizing that "[t]he distinction between independent contractors and employees arose at common law to limit one's vicarious liability for the misconduct of a person rendering service to him" (Borello, supra, 48 Cal.3d at p. 350), and that it was in this context that "the `control of details' test became the principal measure of the servant's status for common law purposes" (ibid.). The court then took note of the prior California decisions discussed above, which generally utilized the common law control-of-details standard in determining whether workers were employees or independent contractors for purposes of social welfare legislation, but which also identified the numerous additional "secondary" factors
After identifying the various purposes of the workers' compensation act,
Although the Borello opinion emphasized that resolution of the employee or independent contractor question must properly proceed in a manner that accords deference to the history and fundamental purposes of the remedial statute in question (Borello, supra, 48 Cal.3d at pp. 353-354), the court at the same time made clear that it was not adopting "detailed new standards for examination of the issue" (id. at p. 354). The court explained in this regard that "the Restatement guidelines heretofore approved in our state remain a useful reference. The standards set forth for contractor's licensees in [Labor Code] section 2750.5 [citation] are also a helpful means of identifying the employee/contractor distinction.[
The Borello court also took note of "the six-factor test developed by other jurisdictions which determine independent contractorship in light of the remedial purposes of the legislation." (Borello, supra, 48 Cal.3d at p. 354.)
The Borello court then turned to the question whether, applying the appropriate legal analysis, the cucumber harvesters at issue in that case were properly considered employees or independent contractors. The court concluded that "[b]y any applicable test" the farmworkers were employees as a matter of law. (Borello, supra, 48 Cal.3d at p. 355; see id. at p. 360.)
In reaching this conclusion, the court first rejected the grower's contention that the control of details factor weighed against a finding of employment because the grower had contracted with the workers only for a "`specified result'" and retained no interest or control over the details of the harvesters' actual work. (Borello, supra, 48 Cal.3d at p. 356.) In explaining its rejection, the court began by emphasizing that "Borello, whose business is the production and sale of agricultural crops, exercises `pervasive control over the operation as a whole.' [Citation.]" (Ibid.) The court observed in this regard: "Borello owns and cultivates the land for its own account. Without any participation by the sharefarmers, Borello decides to grow cucumbers, obtains a sale price formula from the only available buyer, plants the crop, and
Further, the court observed that "contrary to the growers' assertions, the cucumber harvest involves simple manual labor which can be performed in only one correct way. Harvest and plant-care methods can be learned quickly. While the work requires stamina and patience, it involves no peculiar skill beyond that expected of any employee. [Citations.] It is the simplicity of the work, not the harvesters' superior expertise, which makes detailed supervision and discipline unnecessary. Diligence and quality control are achieved by the payment system, essentially a variation of the piecework formula familiar to agricultural employment." (Borello, supra, 48 Cal.3d at pp. 356-357.)
The Borello court then proceeded to discuss other factors that it found supported the classification of harvesters as employees. First, the court noted that "[t]he harvesters form a regular and integrated portion of Borello's business operation. Their work, though seasonal by nature, is `permanent' in the agricultural process. Indeed, Richard Borello testified that he has a permanent relationship with the individual harvesters, in that many of the migrant families return year after year. This permanent integration of the workers into the heart of Borello's business is a strong indicator that Borello functions as an employer under the Act. [Citations.]" (Borello, supra, 48 Cal.3d at p. 357.)
Last, the Borello court rejected the growers' claim that the harvesters should be found to be independent contractors by virtue of their written agreement with the growers, which stated that they were not employees. The court explained: "[T]he protections conferred by the Act have a public purpose beyond the private interests of the workers themselves. Among other things, the statute represents society's recognition that if the financial risk of job injuries is not placed upon the businesses which produce them, it may fall upon the public treasury.... [¶] Moreover, there is no indication that Borello offers its cucumber harvesters any real choice of terms." (Borello, supra, 48 Cal.3d at pp. 358-359.)
On the basis of the foregoing reasons, the Borello court concluded that, as a matter of law, the farmworkers were employees for purposes of the workers' compensation act, and not independent contractors who were excluded from the coverage of the act. (Borello, supra, 48 Cal.3d at p. 360.)
We next summarize this court's decision in Martinez, supra, 49 Cal.4th 35. Although Martinez did not directly involve the issue of whether the workers in question were employees or independent contractors, it did address the meaning of the terms "employ" and "employer" as used in California wage orders, and the proper scope of the Martinez decision lies at the heart of the issue before our court in the present case.
In Martinez, supra, 49 Cal.4th 35, the strawberry grower Munoz & Sons (Munoz) directly employed seasonal agricultural workers but failed to pay the workers the required minimum or overtime wages they had earned. Thereafter, the workers filed an action under section 1194 seeking to recover such
In discussing this question, the court in Martinez recognized at the outset that the workers' attempt in that case to recover unpaid wages "from persons who contracted with their ostensible employer raises issues that have long avoided the attention of California's courts." (Martinez, supra, 49 Cal.4th at p. 50.) The court noted that although section 1194 derived from legislation enacted in 1913 as part of the act that created the Industrial Welfare Commission (hereafter IWC), this court had considered how employment should be defined in actions under section 1194 in only one earlier case. The court further observed that although the phrases used in the applicable IWC wage order to define "employ" and "employer" dated from 1916 and 1947, "the courts of this state have never considered their meaning or scope." (Martinez, at p. 50.)
In addressing these largely unexplored issues, the Martinez court turned initially to the language and legislative history of section 1194. The court noted that section 1194, by its terms, does not define the employment relationship or identify the entities who are liable under the statute for unpaid wages. After an extensive review of the statute's legislative history, however, the court concluded that "[a]n examination of section 1194 in its statutory and historical context shows unmistakably that the Legislature intended the IWC's wage orders to define the employment relationship in actions under the statute." (Martinez, supra, 49 Cal.4th at p. 52; see id. at pp. 53-57.)
The court in Martinez then considered how the IWC, utilizing its broad legislative authority (see Cal. Const., art. XIV, § 1; Industrial Welfare Com., supra, 27 Cal.3d at p. 701), has defined the scope of the employment relationship through the provisions of its wage orders.
The Martinez court then went on to observe that, in addition to defining "employ" to mean suffer or permit to work, all IWC wage orders also include a separate provision defining "employer" to include a person or entity who "`employs or exercises control over the wages, hours, or working conditions of any person.'" (Martinez, supra, 49 Cal.4th at p. 59.) With respect to this language, the court stated: "Beginning with the word `employs,' the definition logically incorporates the separate definition of `employ' (i.e., `to engage, suffer, or permit to work') as one alternative. The remainder of the definition — exercises control over ... wages, hours, or working conditions" — has no clearly identified, precisely literal statutory or common law antecedent." (Ibid.) The court nonetheless made three observations about this language. First, the court noted that because the IWC's delegated authority has always been over wages, hours, and working conditions, it made sense to bring within the IWC's regulatory jurisdiction an entity that controls any one of these aspects of the employment relationship. (Ibid.) Second, the court explained that because this language, "phrased as it is in the alternative (i.e., `wages, hours, or working conditions'), the language of the IWC's `employer' definition has the obvious utility of reaching situations in which multiple entities control different aspects of the employment relationship, as when one entity, which hires and pays workers, places them with other entities that supervise the work." (Ibid., fn. omitted.) Third, the court observed that "the IWC's `employer' definition belongs to a set of revisions
Finally, the court in Martinez held that the IWC wage orders, by defining "employ" to mean "engage" to work (as well as to "suffer or permit" to work), incorporate the common law definition of employment as an alternative definition. The court explained in this regard: "The verbs `to suffer' and `to permit,' as we have seen, are terms of art in employment law. [Citation.] In contrast, the verb `to engage' has no other apparent meaning in the present context than its plain, ordinary sense of `to employ,' that is, to create a common law employment relationship. This conclusion makes sense because the IWC, even while extending its regulatory protection to workers whose employment status the common law did not recognize, could not have intended to withhold protection from the regularly hired employees who undoubtedly comprise the vast majority of the state's workforce." (Martinez, supra, 49 Cal.4th at p. 64, fn. omitted.)
Moreover, the court in Martinez thereafter took pains to emphasize the importance of not limiting the meaning and scope of "employment" to only the common law definition for purposes of the IWC's wage orders, declaring that "ignoring the rest of the IWC's broad regulatory definition would substantially impair the commission's authority and the effectiveness of its wage orders. The commission ... has the power to adopt rules to make the minimum wage `effective' by `prevent[ing] evasion and subterfuge....' [Citation.] ... [L]anguage consistently used by the IWC to define the employment relationship, beginning with its first wage order in 1916 (`suffer, or permit'), was commonly understood to reach irregular working arrangements that fell outside the common law, having been drawn from statutes governing child labor and occasionally that of women. [Citation.] ... To adopt such a definitional provision ... lay squarely within the IWC's power, as the provision has `a direct relation to minimum wages' [citation] and is reasonably necessary to effectuate the purposes of the statute [citations]. For a court to refuse to enforce such a provision in a presumptively valid wage
The court in Martinez thus concluded, first, that the definitions of the employment relationship contained in an applicable wage order apply in a civil action brought by a worker under section 1194, and, second, that the applicable wage order sets forth three alternative definitions of employment for purposes of the wage order: "(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship." (Martinez, supra, 49 Cal.4th at p. 64.) The court then went on to determine whether, under the wage order's alternative definitions, the produce merchants in that case should properly be considered the employer of the agricultural workers and thus could be held liable for the workers' unpaid minimum or overtime wages. (Id. at pp. 68-77.)
With respect to each of the produce merchants, the court in Martinez ultimately concluded that the merchants could not properly be found to be an employer under any of the wage order's alternative definitions.
First, in discussing the scope of the suffer or permit to work standard, the court stated generally: "We see no reason to refrain from giving the IWC's definition of `employ' its historical meaning. That meaning was well established when the IWC first used the phrase `suffer, or permit' to define employment, and no reason exists to believe the IWC intended another. Furthermore, the historical meaning continues to be highly relevant today: A proprietor who knows that persons are working in his or her business without having been formally hired, or while being paid less than the minimum wage, clearly suffers or permits that work by failing to prevent it, while having the power to do so." (Martinez, supra, 49 Cal.4th at p. 69, italics added.) Nonetheless, the court rejected the workers' contention that because the merchants knew the agricultural workers were working for Munoz and because their work benefitted the produce merchants, the merchants suffered or permitted the workers to work within the meaning of the wage order. The court explained that the fact the merchants may have benefitted from the workers' labor, "in the sense that any purchaser of commodities benefits," was not sufficient to incur liability for having suffered or permitted them to work. (Ibid.) The workers' claim failed because they were not working in the produce merchants' businesses and the merchants lacked the power or authority to prevent the workers from working for Munoz. (Id. at p. 70.)
With respect to the third alternative definition of an employment relationship, the common law standard, the Martinez court observed early in the decision that the workers disclaimed any argument that the produce merchants were their employers under common law. (Martinez, supra, 49 Cal.4th at p. 52, fn. 17.)
In sum, although the Martinez court concluded that the wage order definitions of the employment relationship apply in civil actions for unpaid minimum or overtime wages under section 1194, the court ultimately affirmed the trial court and Court of Appeal decisions in that case rejecting the workers' claims that the defendant produce merchants were the workers' employers for purposes of section 1194. (Martinez, supra, 49 Cal.4th at p. 78.)
Four years after the decision in Martinez, supra, 49 Cal.4th 35, we rendered the decision in Ayala, supra, 59 Cal.4th 522. In Ayala, a wage and hour action had been filed on behalf of newspaper carriers who had been hired by the Antelope Valley Press (Antelope Valley) to deliver its newspaper.
In reviewing the trial court's ruling in Ayala, this court noted that "[i]n deciding whether plaintiffs were employees or independent contractors, the trial court and Court of Appeal applied the common law test, discussed most recently at length in Borello, supra, 48 Cal.3d 341." (Ayala, supra, 59 Cal.4th at pp. 530-531.) We pointed out that while the Ayala case was pending in our court "[w]e solicited supplemental briefing concerning the possible relevance of the additional tests for employee status in IWC wage order No. 1-2001, subdivision 2(D)-(F)." (Id. at p. 531, citing, inter alia, Martinez, supra, 49 Cal.4th 35.) The court in Ayala explained that "[i]n light of the supplemental briefing, and because plaintiffs proceeded below on the sole basis that they are employees under the common law, we now conclude we may resolve the case by applying the common law test for employment, without considering these other tests. [Citation.] Accordingly, we leave for another day the question of what application, if any, the wage order tests for employee status might have to wage and hour claims such as these, and confine ourselves to considering whether plaintiffs' theory that they are employees under the common law definition is one susceptible of proof on a classwide basis." (Ayala, at p. 531; see also id. at p. 532, fn. 3.)
In the present case, we take up the issue we did not reach in Ayala, namely whether in a wage and hour class action alleging that the plaintiffs have been
As noted, the drivers' general contention in this case is that Dynamex misclassified its drivers as independent contractors when they should have been classified as employees and as a result violated its obligations under the applicable wage order and a variety of statutes. Most of the causes of action in the complaint rest on Dynamex's alleged failure to fulfill obligations directly set forth in the wage order — for example, the alleged failure to pay overtime wages or to provide accurate wage statements. Other causes of action include Dynamex's alleged failure to comply with statutory obligations that do not derive directly from the applicable wage order — for example, the obligation to reimburse employees for business-related transportation expenses such as fuel or tolls. (See § 2802.) As already explained, Dynamex's petition for review challenged only the Court of Appeal's conclusion that the trial court, in ruling on the class certification motion, did not err in relying upon the definitions of the employment, relationship contained in the wage order with regard to those claims that derive directly from the obligations imposed by the wage order. Accordingly, we address only that issue.
As discussed above, in Martinez, supra, 49 Cal.4th 35, this court clearly held that the IWC has the authority, in promulgating its wage orders, to define the standard for determining when an entity is to be considered an
In the present case, Dynamex argues that two of the three alternative definitions identified in Martinez — the exercise control over wages hours or working conditions standard and the suffer or permit to work standard — are applicable only in determining whether an entity is a joint employer of the workers. In other words, Dynamex maintains that whether a business exercised control over the workers' wages, hours, or working conditions, or suffered or permitted the workers to work are relevant inquiries only in circumstances in which the question at issue is whether, when workers are "admitted employees" of one business (the primary employer), a business entity that has a relationship to the primary employer should also be considered an employer of the workers such that it is jointly responsible for the obligations imposed by the wage order. According to Dynamex, neither of these wage order definitions of "employ" and "employer" applies when the question to be answered is whether a worker is properly considered an employee who is covered by the wage order or, rather, an independent contractor who is excluded from the wage order's protections. The latter inquiry, Dynamex asserts, is governed solely by the third definition identified in Martinez, the Borello standard.
For the reasons discussed below, we conclude that there is no need in this case to determine whether the exercise control over wages, hours or working conditions definition is intended to apply outside the joint employer context, because we conclude that the suffer or permit to work standard properly applies to the question whether a worker should be considered an employee or, instead, an independent contractor, and that under the suffer or permit to work standard, the trial court class certification order at issue here should be upheld. (See Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1032 [139 Cal.Rptr.3d 315, 273 P.3d 513] [when plaintiffs in a class action rely on multiple legal theories, a trial court's certification of a class is not an abuse of discretion if certification is proper under any of the theories].) As explained below, the suffer or permit to work standard has a long and well-established history, and in other jurisdictions has regularly been held
To begin with, although Dynamex contends that the suffer or permit to work standard should be understood as applicable only to the joint employer question like that involved in the Martinez decision itself, there is nothing in the language of the wage order indicating that the standard is so limited. As Martinez discussed, the suffer or permit language is one of the wage order's alternative definitions of the term "employ." (Martinez, supra, 49 Cal.4th at p. 64.) On its face, the standard would appear relevant to a determination whether, for purposes of the wage order, a worker should be considered an individual who is "employ[ed]" by an "employer" (and therefore an employee covered by the wage order) or, instead, an independent contractor who has been hired, but not "employed," by the hiring business (and thus not covered by the wage order).
Dynamex contends, however, that even if the suffer or permit to work standard can apply outside the joint employer context to circumstances like those in the early child worker cases cited in Martinez, that standard should not be construed as applicable to the question whether an individual worker is an employee or, instead, an independent contractor. Dynamex proffers a number of arguments in support of this contention.
First, Dynamex points out that the suffer or permit to work language has been a part of California wage orders for over a century and that since the Borello decision was handed down in 1989, California decisions have applied the Borello standard in distinguishing employees from independent contractors in many contexts, including in cases arising under California's wage orders. (See, e.g., Ali v. U.S.A. Cab Ltd. (2009) 176 Cal.App.4th 1333, 1347 [98 Cal.Rptr.3d 568]; Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1, 11-13 [64 Cal.Rptr.3d 327].) Dynamex asserts that there is no reason to interpret the Martinez decision as altering this situation. In further support of this position, Dynamex refers to several sections of the Division of Labor Standards Enforcement (DLSE) Enforcement Policies and Interpretations Manual that discuss the employee/independent contractor distinction and that indicate that the DLSE has in the past applied the Borello standard in determining whether a worker is an employee or independent contractor for purposes of a wage order. (See DLSE, 2002 Update of the DLSE Enforcement Policies and Interpretations Manual (rev. 2017) §§ 2.2, 2.2.1, 28, available at <www.dir.ca.gov/dlse/DLSEManual/dlse_enfcmanual.pdf> [as of Apr. 30, 2018] (DLSE Manual).
As our decision in Martinez itself observed, however, prior to Martinez no California decision had discussed the wage orders' suffer or permit to work language in any context. (Martinez, supra, 49 Cal.4th at p. 50.) In Martinez, we applied the suffer or permit to work standard in determining whether the produce merchants should be considered joint employers of the farmworkers even though that test had not been applied in prior California decisions. (Id. at pp. 69-71.) Thus, the lack of prior case support does not distinguish the employee/independent contractor context from the joint employer context at issue in Martinez.
Second, Dynamex asserts that the Martinez decision itself indicates that the Borello standard, rather than the suffer or permit to work standard, applies in the wage order context to distinguish independent contractors from employees. Dynamex points to a passage in Martinez in which the court relied on a
Third, Dynamex maintains that a number of Court of Appeal opinions decided after Martinez demonstrate that the Borello standard continues to control the determination of whether a worker is an employee or independent contractor for purposes of an applicable wage order. (See, e.g., Arnold v. Mutual of Omaha Ins. Co. (2011) 202 Cal.App.4th 580, 586-588 [135 Cal.Rptr.3d 213]; Arzate v. Bridge Terminal Transport, Inc. (2011) 192 Cal.App.4th 419, 425-427 [121 Cal.Rptr.3d 400].) None of the Court of Appeal decisions relied upon by Dynamex, however, refers to or analyzes the potential application of the suffer or permit to work standard to the employee or independent contractor question. By contrast, the Court of Appeal decision in the present case cited and discussed a number of post-Martinez Court of Appeal decisions recognizing that the definitions of "employ" and "employer" discussed in Martinez now govern the resolution of claims arising out of California wage orders, including whether a worker is an employee or independent contractor. (See, e.g., Guerrero v. Superior Court (2013) 213 Cal.App.4th 912, 945-952 [153 Cal.Rptr.3d 315]; Bradley v. Networkers Internat., LLC (2012) 211 Cal.App.4th 1129, 1146-1147 [150 Cal.Rptr.3d 268]; Futrell v. Payday California, Inc. (2010) 190 Cal.App.4th 1419, 1429 [119 Cal.Rptr.3d 513].) In short, California decisions since Martinez do not support Dynamex's contention that the suffer or permit to work standard is not applicable to the employee/independent contractor determination.
Fourth, Dynamex contends that even if there is nothing in Martinez or subsequent Court of Appeal decisions that renders the suffer or permit to work standard inapplicable to the employee or independent contractor question, it would introduce unnecessary confusion into California law to adopt a standard for wage orders that differs from the Borello standard, which is widely utilized in other contexts for distinguishing between employees and independent contractors. The applicable wage order, however, purposefully adopts its own definition of "employ" to govern the application of the wage
Moreover, because the Borello standard itself emphasizes the primacy of statutory purpose in resolving the employee or independent contractor question, when different statutory schemes have been enacted for different purposes, it is possible under Borello that a worker may properly be considered an employee with reference to one statute but not another. (Accord, People v. Superior Court (Sahlolbei) (2017) 3 Cal.5th 230, 235-245 [219 Cal.Rptr.3d 436, 396 P.3d 568].) Further, because the applicable federal wage and hour law — the Fair Labor Standards Act of 1938 (FLSA) (29 U.S.C. § 201 et seq.) — contains its own standard for resolving the employee or independent contractor issue (see post, pp. 950-951, fn. 20, & pp. 953-954), an employer must, in any event, take into account a variety of applicable standards. Indeed, the federal context demonstrates that California is not alone is adopting a distinct standard that provides broader coverage of workers with regard to the very fundamental protections afforded by wage and hour laws and wage orders; like California wage orders, the FLSA contains a broader standard of employment than that generally applicable in other, non-wage-and-hour federal contexts. (See, e.g., Darden, supra, 503 U.S. at p. 326.)
Finally, and perhaps most significantly, Dynamex argues that the suffer or permit to work standard cannot serve as the test for distinguishing employees from independent contractors because a literal application of that standard would characterize all individual workers who directly provide services to a business as employees. A business that hires any individual to provide services to it can always be said to knowingly "suffer or permit" such an
As we explain, for a variety of reasons we agree with these authorities that the suffer or permit to work standard is relevant and significant in assessing the scope of the category of workers that the wage order was intended to protect. The standard is useful in determining who should properly be treated as covered employees, rather than excluded independent contractors, for purposes of the obligations imposed by the wage order.
At the outset, it is important to recognize that over the years and throughout the country, a number of standards or tests have been adopted in legislative enactments, administrative regulations, and court decisions as the means for distinguishing between those workers who should be considered employees and those who should be considered independent contractors.
These fundamental obligations of the IWC's wage orders are, of course, primarily for the benefit of the workers themselves, intended to enable them to provide at least minimally for themselves and their families and to accord them a modicum of dignity and self-respect. (See generally Rogers, Justice at Work: Minimum Wage Laws and Social Equality (2014) 92 Tex. L.Rev. 1543.) At the same time, California's industry-wide wage orders are also clearly intended for the benefit of those law-abiding businesses that comply with the obligations imposed by the wage orders, ensuring that such responsible companies are not hurt by unfair competition from competitor businesses that utilize substandard employment practices. (See § 90.5, subd. (a);
The federal courts, in applying the suffer or permit to work standard set forth in the FLSA, have recognized that the standard was intended to be broader and more inclusive than the preexisting common law test for distinguishing employees from independent contractors, but at the same time, does not purport to render every individual worker an employee rather than an independent contractor. (See Rutherford Food, supra, 331 U.S. 722, 728-729.) As noted above (ante, pp. 950-951, fn. 20), the federal courts have
A multifactor standard — like the economic reality standard or the Borello standard — that calls for consideration of all potentially relevant factual distinctions in different employment arrangements on a case-by-case, totality'of-the-circumstances basis has its advantages. A number of state courts, administrative agencies and academic commentators have observed, however, that such a wide-ranging and flexible test for evaluating whether a worker should be considered an employee or an independent contractor has significant disadvantages, particularly when applied in the wage and hour context.
First, these jurisdictions and commentators have pointed out that a multifactor, "all the circumstances" standard makes it difficult for both hiring businesses and workers to determine in advance how a particular category of workers will be classified, frequently leaving the ultimate employee or independent contractor determination to a subsequent and often considerably delayed judicial decision. In practice, the lack of an easily and consistently applied standard often leaves both businesses and workers in the dark with respect to basic questions relating to wages and working conditions that arise regularly, on a day-to-day basis. (See, e.g., Hargrove v. Sleepy's, LLC (2015) 220 N.J. 289 [106 A.3d 449, 465] (Hargrove) ["permitting an employee to know when, how, and how much he will be paid requires a test designed to yield a more predictable result than a totality-of-the-circumstances analysis that is by its nature case specific"]; accord, Lauritzen, supra, 835 F.2d at p. 1539 (conc. opn. of Easterbrook, J.) ["People are entitled to know the legal
Second, commentators have also pointed out that the use of a multifactor, all the circumstances standard affords a hiring business greater opportunity to evade its fundamental responsibilities under a wage and hour law by dividing its work force into disparate categories and varying the working conditions of individual workers within such categories with an eye to the many circumstances that may be relevant under the multifactor standard. (See, e.g., Middleton, Contingent Workers in a Changing Economy: Endure, Adapt, or Organize? (1997) 22 N.Y.U. Rev. L. & Soc. Change 557, 568-569 ["[t]he legal test for determining employee/independent contractor status is a complex and manipulable multifactor test which invites employers to structure their relationships with employees in whatever manner best evades liability"]; Befort, Labor and Employment Law at the Millennium: A Historical Review and Critical Assessment (2002) 43 B.C. L.Rev. 351, 419; Carlson, Why the Law Still Can't Tell an Employee When It Sees One and How It Ought To Stop Trying (2001) 22 Berkeley J. Emp. & Lab. L. 295, 335-338.)
We briefly discuss each part of the ABC test and its relationship to the suffer or permit to work definition.
Thus, on the one hand, when a retail store hires an outside plumber to repair a leak in a bathroom on its premises or hires an outside electrician to install a new electrical line, the services of the plumber or electrician are not part of the store's usual course of business and the store would not reasonably be seen as having suffered or permitted the plumber or electrician to provide services to it as an employee. (See, e.g., Enforcing Fair Labor Standards, supra, 46 UCLA L.Rev. at p. 1159.) On the other hand, when a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter
Treating all workers whose services are provided within the usual course of the hiring entity's business as employees is important to ensure that those workers who need and want the fundamental protections afforded by the wage order do not lose those protections. If the wage order's obligations could be avoided for workers who provide services in a role comparable to employees but who are willing to forgo the wage order's protections, other workers who provide similar services and are intended to be protected under the suffer or permit to work standard would frequently find themselves displaced by those willing to decline such coverage. As the United States Supreme Court explained in a somewhat analogous context in Alamo Foundation, supra, 471 U.S. at page 302, with respect to the federal wage and hour law: "[T]he purposes of the [FLSA] require that it be applied even to those who would decline its protections. If an exception to the Act were carved out for employees willing to testify that they performed work `voluntarily,' employers might be able to use superior bargaining power to coerce employees to make such assertions, or to waive their protections under the Act. [Citations.] Such exceptions to coverage would affect many more people than those workers directly at issue in this case and would be likely to exert a general downward pressure on wages in competing businesses." (Ibid.)
Accordingly, a hiring entity must establish that the worker performs work that is outside the usual course of its business in order to satisfy part B of the ABC test.
In our view, this interpretation of the suffer or permit to work standard is faithful to its history and to the fundamental purpose of the wage orders and will provide greater clarity and consistency, and less opportunity for manipulation, than a test or standard that invariably requires the consideration and weighing of a significant number of disparate factors on a case-by-case basis. (Accord, Hargrove, supra, 106 A.3d at pp. 463-464 [interpreting suffer or permit to work definition of state wage law to permit application of the ABC test]; Tianti ex rel. Gluck v. William Raveis Real Estate (1995) 231 Conn. 690 [651 A.2d 1286, 1290-1291] [same].)
We now turn to application of the suffer or permit to work standard in this case. As Dynamex points out, the trial court, in applying the suffer or permit to work definition in its class certification order, appears to have adopted a literal interpretation of the suffer or permit to work language that, if applied generally, could potentially encompass the type of traditional independent contractor — like an independent plumber or electrician — who could not reasonably have been viewed as the hiring business's employee.
First, with respect to part B of the ABC test, it is quite clear that there is a sufficient commonality of interest with regard to the question whether the work provided by the delivery drivers within the certified class is outside the usual course of the hiring entity's business to permit plaintiffs' claim of misclassification to be resolved on a class basis. In the present case, Dynamex's entire business is that of a delivery service. Unlike other types of businesses in which the delivery of a product may or may not be viewed as within the usual course of the hiring company's business,
Second, with regard to part C of the ABC test, it is equally clear from the record that there is a sufficient commonality of interest as to whether the drivers in the certified class are customarily engaged in an independently established trade, occupation, or business to permit resolution of that issue on a class basis As discussed above, prior to 2004 Dynamex classified the drivers who picked up and delivered the packages and documents from Dynamex customers as employees rather than independent contractors. In 2004, Dynamex adopted a new business structure under which it required all of its drivers to enter into a contractual agreement that specified the driver's status as an independent contractor. Here the class of drivers certified by the trial court is limited to drivers who, during the relevant time periods, performed delivery services only for Dynamex. The class excludes drivers who performed delivery services for another delivery service or for the driver's own personal customers; the class also excludes drivers who had employees of their own. With respect to the class of included drivers, there is no indication in the record that there is a lack of commonality of interest regarding the question whether these drivers are customarily engaged in an independently established trade, occupation, or business. For this class of drivers, the pertinent question under part C of the ABC test is amenable to resolution on a class basis.
For the reasons discussed above, the judgment of the Court of Appeal is affirmed.
Chin, J., Corrigan, J., Liu, J., Cuéllar, J., and Kruger, J., and Siggins, J.,
The wage order also specifically exempts from its provisions, in whole or in part, (1) employees directly employed by the state or any political subdivision, (2) outside salespersons, (3) any person who is the parent, spouse, or child of the employer, (4) employees who have entered into a collective bargaining agreement under the federal Railway Labor Act (45 U.S.C. § 151 et seq.), and (5) any individual participating in a national service program such as AmeriCorps. (Cal. Code Regs., tit. 8, § 11090, subd. 1(B)-(F).)
The first category is commonly characterized as embodying the common law standard, because the standards within this category give significant weight to evidence of the hirer's right to control the details of the work, which had its origin in the common law tort and respondeat superior context. These standards supplement the control of details factor with a variety of additional circumstances, often described as secondary factors. The United States Supreme Court's decision in Darden, supra, 503 U.S. 318, in holding that this standard applies in interpreting the meaning of the term "employee" in federal statutes that do not otherwise provide a meaningful definition of that term, lists 12 secondary factors to be considered in addition to the right to control factor. (503 U.S. at p. 323, quoting Community for Creative Non-Violence v. Reid (1989) 490 U.S. 730, 751-752 [104 L.Ed.2d 811, 109 S.Ct. 2166].) The IRS has adopted a variation of this standard which lists 20 secondary factors (IRS, Revenue Ruling 87-41, 1987-1 C.B. 296, 298-299); the state of Kansas also has adopted a variation which lists 20 secondary factors, some but not all of which are similar to those applied in other jurisdictions. (See, e.g., Craig v. FedEx Ground Package System (2014) 300 Kan. 788 [335 P.3d 66, 75-76].) Although this court's decision in Borello has sometimes been described as adopting the common law standard, as discussed above (ante, pp. 929-935), in Borello we explained that under California law the control factor is not as concerned with the hiring entity's control over the details of a worker's work as it is with determining whether the hiring entity has retained "necessary control" over the work, and Borello further made clear that consideration of all of the relevant factors is directed at determining whether treatment of the worker as an employee or an independent contractor would best effectuate the purpose of the statute at issue. (Borello, supra, 48 Cal.3d at pp. 356-359.)
The second category is the "economic reality" (or "economic realities") standard that has been adopted in federal decisions as the standard applicable in cases arising under the FLSA. (See, e.g., Goldberg v. Whitaker House Coop (1961) 366 U.S. 28, 33 [6 L.Ed.2d 100, 81 S.Ct. 933] (Whitaker House Coop); Tony & Susan Alamo Foundation v. Sec'y of Labor (1985) 471 U.S. 290, 301 [85 L.Ed.2d 278, 105 S.Ct. 1953] (Alamo Foundation).) These cases interpret the "suffer or permit to work" definition of "employ" in the FLSA (29 U.S.C. § 203(g)) as intended to treat as employees those workers who, as a matter of economic reality, are economically dependent upon the hiring business, rather than realistically being in business for themselves. In making this determination, lower federal court decisions generally refer to a list of factors, many that are considered under the common law standards, including "`(1) the degree of control exercised by the employer over the workers, (2) the workers' opportunity for profit or loss and their investment in the business, (3) the degree of skill and independent initiative required to perform the work, (4) the permanence or duration of the working relationship, and (5) the extent to which the work is an integral part of the employer's business.'" (Zheng v. Liberty Apparel Co. (2d Cir. 2003) 355 F.3d 61, 67; see Superior Care, supra, 840 F.2d at pp. 1058-1059; see generally Annot., Determination of "Independent Contractor" and "Employee" Status for Purposes of § 3(e)(1) of the Fair Labor Standards Act (29 USCS § 203(e)(1)) (1981) 51 A.L.R.Fed. 702 (Annotation).)
The third category of standards is described as embodying the "ABC standard." This standard, whose objective is to create a simpler, clearer test for determining whether the worker is an employee or an independent contractor, presumes a worker hired by an entity is an employee and places the burden on the hirer to establish that the worker is an independent contractor. Under the ABC standard, the worker is an employee unless the hiring entity establishes each of three designated factors: (a) that the worker is free from control and direction over performance of the work, both under the contract and in fact; (b) that the work provided is outside the usual course of the business for which the work is performed; and (c) that the worker is customarily engaged in an independently established trade, occupation or business (hence the ABC standard). If the hirer fails to show that the worker satisfies each of the three criteria, the worker is treated as an employee, not an independent contractor. (See generally Deknatel & Hoff-Downing, ABC on the Books and in the Courts: An Analysis of Recent Independent Contractor and Misclassification Statutes (2015) 18 U.Pa. J.L. & Soc. Change 53 (ABC on the Books).)
In addition to these three categories, the recent Restatement of Employment Law, adopted by the American Law Institute in 2015, sets forth a standard which focuses, in addition to the control of details factor, on the entrepreneurial opportunity that the worker is afforded. (See Rest., Employment, § 1.01, subds. (a), (b); see also FedEx Home Delivery v. NLRB (D.C. Cir. 2009) 563 F.3d 492, 497.)
Many jurisdictions that have adopted the ABC test use the standard only in the unemployment insurance context, but other jurisdictions use the ABC test more generally in determining the employee or independent contractor question with respect to a variety of employee-protective labor statutes. (See, e.g., Mass. Gen. Laws ch. 149, § 148B; Del. Code Ann. tit. 19, §§ 3501(a)(7), 3503(c); Hargrove, supra, 106 A.3d at pp. 462-465; see generally ABC on the Books, supra, 18 U.Pa. J.L. & Soc. Change, at pp. 65-72 [discussing numerous state statutes and judicial decisions].)
In reaching this conclusion, the court in Hargrove recognized that both of the New Jersey statutes in question "use the term `suffer or permit' to define those who are within the protection of each statute" and that such language had been interpreted in federal decisions to support the "`economic realities'" standard. (Hargrove, supra, 106 A.3d at p. 463.) Nonetheless, the court in Hargrove, in finding that application of the ABC test was appropriate, relied in part on the fact that "the `ABC' test operates to provide more predictability and may cast a wider net than the FLSA `economic realities' standard" and that "[by] requiring each identified factor to be satisfied to permit classification as an independent contractor, the `ABC' test fosters the provision of greater income security for workers, which is the express purpose of both [statutes]." (Hargrove, supra, 106 A.3d at p. 464.)
Our decision in Martinez makes clear that the IWC, in defining the employment relationship for purposes of wage orders, was not limited to utilizing the common law test of employment (Martinez, supra, 49 Cal.4th at pp. 57-66), and Dynamex does not take issue with Martinez's conclusion in this regard. Further, the ABC test for distinguishing employees from independent contractors provides a common and well-established test for distinguishing employees from independent contractors. Accordingly, although the constitutional argument set forth in Dynamex's briefing is not directed to the standard adopted in this opinion, to avoid any misunderstanding we conclude that application of the suffer or permit to work standard, as interpreted in this opinion, to determine whether a worker is an employee or independent contractor for purposes of a wage order does not exceed the IWC's authority under article XIV, section 1 of the California Constitution.