Dynamex and Gig Worker Classification: Only a California Dream?

Life in the United States has been redefined by the emergence of platform businesses and a “gig economy” with jobs that aren’t performed in conventional workplaces. Firms like Uber and DoorDash have controversially fueled their growth by legally classifying workers as independent contractors instead of employees, thereby exempting the companies from some minimum wage regulations and other requirements to offer benefits packages. Gig economy worker classification has become a major political issue, and the California Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County in favor of a delivery driver appeared to have generated a key turning point in the controversy. [1] While the ruling created a more favorable threshold for independent contractors seeking to be reclassified as employees, this article will argue that the Dynamex decision was largely made possible by idiosyncrasies of the California legal system and that labor advocates’ hopes of similar changes at the federal level will likely require Congressional action.

For decades, the California judiciary has adjudicated battles over the employee-independent contractor distinction through the state’s labor-friendly wage orders. These wage orders, created in the 1910s by the now-defunct Industrial Welfare Commission (IWC), remain on the books as “constitutionally-authorized, quasi-legislative regulations that have the force of law.” [2] These technicalities are significant because the federal Fair Labor Standards Act (FLSA)—which serves as the primary framework for wage regulation in many states—was not adopted until 1938. Federal courts have interpreted the FLSA using a standard that is generally unforgiving to independent contractors seeking reclassification, but given the California wage orders’ broad, unique worker protections and earlier creation, the California Supreme Court has declined to apply the federal standard in its own jurisdiction. [3]

Two earlier California Supreme Court cases structured the precedent addressed in Dynamex. In its 1989 decision in G.G. Borello & Sons, Inc. v. Department of Industrial Relations, the California Supreme Court decided that an employer’s ability to control the results—but not the methods—of a worker’s work was the primary criterion for determining independent contractor status, but the ruling also held that a broader approach incorporating secondary factors was appropriate. [4] Although Borello proximately granted employee status to a group of migrant cucumber farmers, the Court did not actually carry out the control test and did not enumerate an exhaustive list of secondary factors for consideration. This omission granted individual judges broad leeway in deciding which additional information beyond the control of workers is relevant to worker classification disputes. [5]

The California Supreme Court enhanced the Borello standard with its 2010 opinion in Martinez v. Combs. [6] The Court claimed that the California legislature’s intent in creating the IWC was to broadly prevent abusive employment relationships by defining “employ” as “to suffer or permit to work.” [7] The Court interpreted this archaic phrase as meaning that a business’s responsibility is to prevent work that it knows is occurring without a formal hiring process and for a sub-minimum wage. [8] The Court incorporated this analysis into a three-pronged test, stipulating that a worker is an employee if a business does any of the following in its relationship with a worker: “(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.” [9] The Martinez precedent limited the range of additional factors an employer could ask California judges to consider but put forth ambiguous test criteria that could also be manipulated by interested parties.     

The California Supreme Court clarified these ambiguities in 2018 with Dynamex. The litigation began as a suit brought by Charles Lee against Dynamex, an office supply delivery company that hired Lee as a driver and classified him as an independent contractor. California Chief Justice Cantil-Sakauye affirmed a lower court’s judgment for a group of Dynamex drivers but also challenged the Martinez test by claiming, “the suffer or permit to work definition is a term of art that cannot be interpreted literally.” [10] Instead, she held that a worker can only be exempted from a wage order if all three “ABC” conditions are met: “(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”[11] A worker in California is now presumed to be an employee until proven otherwise, but Chief Justice Cantil-Sakauye strongly emphasized that the Dynamex ruling found its basis in the broad, historical intent of the IWC’s creation in California  and critiqued the federal standard used in FLSA cases. [12]

The California Assembly’s subsequent codification of the Dynamex standard highlighted even broader contingencies. [13] Companies can still attempt to evade the “ABC” test, and Uber itself has expressed optimism that its drivers will retain independent contractor status. [14] Uber’s Chief Legal Officer pointed to arbitration in which the company successfully defended itself by claiming that its business is a technology platform that functions by collecting drivers’ data but does not, “require the Drivers, expressly or by implication, to drive passengers or even make themselves available to do so.” [15] 

Despite the seemingly sweeping precedent established in Dynamex, unique regulatory circumstances in California empowered the California Supreme Court’s ruling, and the decision’s exact implications there are still unclear. To bring a swift end to the nationwide parade of litigation surrounding the classification of workers, Congress needs to amend the FLSA and clarify what it means to be an independent contractor. Many politicians have offered lofty rhetoric about reorienting the American economy to benefit those disadvantaged by the rise of Big Tech, but the devil is in the fine print of legislation from the 1930s.

[1] Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County 4 Cal. 5th 903 (Cal., 2018). For evidence of the political salience, see: “California Senate Passes Bill to Tighten ‘gig’ Worker Rule.” Reuters, September 12, 2019. https://www.reuters.com/article/us-employment-california-idUSKCN1VW0M7; and Warren, Elizabeth. “To Stop Shameful Exploitation of ‘Gig Economy’ Workers, Let’s Start with This Bill.” The Sacramento Bee, August 14, 2019. https://www.sacbee.com/opinion/article233987982.html.

[2] Ibid., 905.

[3] Morgan, James F. “Clarifying the Employee/Independent Contractor Distinction: Does the California Supreme Court’s Dynamex Decision Do the Job?” 69 Labor Law Journal 3, 133 (Fall 2018).

[4] S.G. Borello & Sons Inc. v. Department of Industrial Relations 48 Cal. 3d 341 (Cal., 1989) in Ibid.,131.

[5] Ibid., 131-2.

[6] Martinez v. Combs 49 Cal. 4th 35 (Cal., 2010).

[7] Ibid., 65-71.

[8] Ibid., 75-76.

[9] Ibid., 69.

[10] Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, 909.

[11] Ibid., 909.

[12] Ibid., 967.

[13] Assembly Bill No. 5, Sess. of 2019 (Cal. 2019), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB5

[14] Deknatel, Anna, and Lauren Hoff-Downing. “ABC on the Books and in the Courts: An Analysis of Recent Independent Contractor and Misclassification Statutes.” 18 University of Pennsylvania Journal of Law and Social Change 1, 80-1 (January 2015).

[15] Adonnis Biafore and Sothyson Pa v. Uber Technologies, Inc., Judicate West Communal Arbitration Tribunal, Case No. 455564, Jay McCauley Arb. (2018), 4. https://drive.google.com/file/d/1nwo0-oT7vaPv1tCs3VSvMcKbk9QZhqjR/view (Accessed October 28, 2019 via Uber Newsroom. “Update on AB5 | Uber Newsroom US,” September 11, 2019.https://www.uber.com/newsroom/ab5-update/.).