Dueling Independent Contractor Classification Approved in California
In October of 2018, Mr. Richard Kern of this office published a Newsletter article discussing the Dynamex Operation West, Inc. v. Superior Court case. Mr. Kern’s article points out that under this case there are new classification rules for independent contractors, specifically the Dynamex case certifies the ABC Test over the Borello Test which was previously used to determine whether a worker was an independent contractor or an employee.
After that article was published, the Fourth District Court of Appeal published the case of Garcia v. Border Transportation Group, LLC on October 22, 2018. This case involved a wage and hour lawsuit based on the alleged violation of the Industrial Welfare Commission’s published Wage Order.
At the trial court level, summary judgment was granted against the plaintiff, Mr. Garcia, finding that he was an independent contractor.
Mr. Garcia worked as a taxi driver in Colexico, California. Taxis are regulated by the City of Colexico which requires every taxi operator to obtain a certificate from the City. The certificate provides authority for a certain number of vehicles to be operated by the taxi operator. Additionally, the City sets the rates for the taxi cabs, approves color schemes and performs inspections of the vehicles.
The City Code allowed for certificate holders to hire employees or independent contractors as part of the taxi service. Each worker who would be operating a taxi was required to get a driver’s permit and each driver permit was tied to a particular taxi company. As such, if a driver left one taxi company and went to work for another, that driver would have to obtain a new driver’s permit from the City of Colexico.
Border Transportation Group owned 30 of the 45 vehicle permits issued by the City of Colexico.
Mr. Garcia worked as a driver for Border Transportation Group from January 2009 to August 2013. During that time, Mr. Garcia would pay $520 per week for a vehicle permit use lease. Additionally, he paid $350 per month to use the dispatch service. The lease agreement for the vehicle permit identified Mr. Garcia as an independent contractor and made clear that no employee-employer relationship existed between Border Transportation Group and Mr. Garcia.
Mr. Garcia sued Border Transportation Group for wrongful termination in violation of public policy, unpaid wages under the wage order, failure to pay minimum wage, failure to pay overtime, failure to provide meal and rest breaks, a failure to furnish accurate wage statements, waiting time penalties and unfair competition through the Public Attorney General Act.
At the trial court level, Border Transportation Group moved for summary judgment based on the factors set forth in the Borello case. Border Transportation Group argued that Mr. Garcia was an independent contractor and in support of its Motion for Summary Judgment showed that Mr. Garcia could set his own hours, use his car for personal errands, decline dispatch service, keep collected fairs, have sublease agreements, have his own employees, take on other jobs and advertise in his own name. Based on these facts, the trial court found that Mr. Garcia was an independent contractor.
Thereafter, Mr. Garcia appealed the trial court’s decision. Following the full briefing of the appellate case, the California Supreme Court issued its decision in Dynamex. The parties were then allowed to provide further briefing to the Fourth District Court of Appeal.
The Fourth District Court of Appeal found that the granting of a summary judgment was erroneous because Border Transportation Group could not meet the ABC Test adopted in Dynamex. Most importantly, they could not show that Mr. Garcia was customarily engaged in an independently established trade, occupation or business.
The ABC Test sets forth that an employer arguing that a worker is an independent contractor must show that:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
- That the worker performs work that is outside the usual course of the hiring entity’s business; and
- That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
While the court could have focused on the “B” of the ABC Test in that Mr. Garcia was a taxi driver for a taxi company, it instead focused on the “C” element. The Fourth District Court of Appeal held that it is not sufficient that Mr. Garcia could engage in an independent business, the employer must show that Mr. Garcia was in fact engaged in an independent business or trade.
The Garcia court also looked at the relationship between Dynamex and Borello. Because the Dynamex case was clear that it only applied to wage orders, the Fourth District Court of Appeal affirmed that Dynamex did not apply to workers’ compensation claims or non-wage order claims. With regards to those claims, the Borello test would still be controlling.
Because of this, the Borello test would be applicable to Mr. Garcia’s wrongful termination, waiting time penalty and unlawful competition claims as these were not violations of the applicable wage order. Additionally, overtime did not apply to taxi drivers pursuant to the wage order and thus would not fall under the Dynamex umbrella.
Based on the fact that Mr. Garcia did not solicit, advertise or otherwise hold himself out in the community as being in a separate business because he never established himself as a separate business or have his own customer list or his own business license or anything else that was indicative of his business and more importantly because he could not continue working if he left Border Transportation Group without obtaining a new license, the Motion for Summary Judgment with regards to the wage and hour claim had to be reversed. The Motion for Summary Judgment would be upheld with regards to the wrongful termination, waiting time penalties and unlawful competition.
Once again the California courts have established that the Dynamex case only applies to wage orders while keeping the Borello test in place for non-wage order actions and workers’ compensation. Given the confusing decisions that will result from both tests being valid, it is likely that a general adoption of the ABC Test will occur at some point in the future.
If you have questions regarding employment issues, please contact our office at PKNW, 7112 N. Fresno Street, Suite 300, Fresno, CA 93720, Telephone: (559) 449-2558, Facsimile: (559) 449-2564.