The California Court of Appeal, Second District, issued an opinion on October 15, 2014, that considered whether the definition of “employee” from the Industrial Welfare Commission Wage Order No. 9 (Wage Order) or the common law test found in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) (Borello) applied to the analysis of whether a putative employer properly classified courier and delivery service individuals as independent contractors.

In Dynamex Operations West, Inc. v. The Superior Court of Los Angeles, -- Cal. Rprt. 3d -- 2014 WL 5173038 (Cal. Ct. App. Oct. 15, 2014) (certified for publication) the court found that the trial court correctly allowed the plaintiffs to rely on the Wage Order No. 9 definition of “employees” in support of their class action wage claims and that, for claims outside the scope of the Wage Order, the Borello test applies.

The Influence of Martinez v. Combs

Wage Order No. 9 defines an employer as any person “who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” This language was examined by the Supreme Court of California in Martinez v. Combs, 49 Cal. 4th 35 (2010). There, the Supreme Court concluded that “to employ” has alternative definitions: “(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.” Id. at 64. 

In Martinez, the California Supreme Court considered wage claims asserted by agricultural workers who all parties agreed were employees of Munoz, a strawberry grower. Id. at 42-43. Munoz declared bankruptcy, and failed to pay the workers’ wages. Id. at 42, 46-48. The workers then filed suit against the produce merchants with whom Munoz did business, asserting claims under Labor Code section 1194 (requiring payment of minimum wage to employees) and derivative claims under other statutes. No party contended that the workers were independent contractors. Instead, the parties disputed who employed the workers. The merchants argued that only Munoz was the employer, while the workers argued that Munoz and the merchants were joint employers. The resolution of that dispute controlled the outcome of the case because, as the court observed, “only an employer can be liable” for unpaid minimum wages. Id. at p. 49. Ultimately, the court applied the Wage Order definition to a section 1194 claim to recover unpaid minimum wages, finding that on the evidence presented in the trial court, the workers were not the produce merchants “employees” because they did not establish that the merchants supervised or exercised control over the workers.

The Borello Test

The Borello test, on the other hand, looks at the service recipient’s (or putative employer) “right to control” the manner and means by which the independent contractor (or putative employee) accomplishes the desired result, along with as many as 14 “secondary factors designed to explore the nature of the parties’ actual business relationship.” See Sotelo v. MediaNews Grp., Inc., 207 Cal. App. 4th 639, 656-57 (2012).

The California Supreme Court requested briefing on this issue in 2013 to address independent contractor status based on Wage Order No. 9 or the common law test set forth in Borello. In 2013, the California Supreme Court suggested that it would consider the interaction between the tests when it requested special briefing on issue. See Ayala v. Antelope Valley Press, 59 Cal. 4th 522 (2014). In Ayala, several independent contractor newspaper carriers alleged they were employees rather than independent contractors and sought “wages” under the Labor Code on behalf of a putative class of paper carriers. The Ayala court ultimately found it unnecessary to consider the claims under the Martinez/Wage Order analysis because, in the trial court, the plaintiffs had proceeded solely under Borello. 

Dynamex Operations West

In Dynamex, the Second Appellate District of California’s Court of Appeal reached the question the California Supreme Court avoided in Ayala: when should a court considering whether a worker is an “employee” under California law apply the Martinez/Wage Order test, and when should it apply the common law test from Borello. There, the court considered a motion to decertify a class of courier and delivery drivers who were classified by Dynamex as independent contractors, when it had once classified them as “employees.” Dynamex argued that the trial court improperly applied the Martinez test when it should have used the Borello test. According to Dynamex, if the Borello test applied, the class should be decertified because of the predominance of individualized issues the court must consider.

The Court of Appeal largely rejected Dynamex’s argument, holding that the trial court properly applied the Martinez test to all claims that fell within the scope of Wage Order No. 9, but that claims that were not encompassed by the Wage Order should be analyzed under the Borello test. By applying the Wage Order definition rather than the Borello test, it may be easier for independent contractors to allege that they are actually employees, not contractors, and to assert wage claims under the Wage Order.

Finally, the Dynamex court found that claims for reimbursement for rental or purchase of personal vehicles used in performing delivery services are outside the Wage Order and, for those claims, the applicable test is Borello.

If your company has independent contractors in California, please contact experienced counsel with your questions on this rapidly changing area of the law.

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