Court Expands Use of ABC Test in California, Commits Candy Land Party Foul

Dynamex ABC Test Candy Land

Suppose you are dominating an important game of Candy Land, having picked the orange card first, which gave you the privilege of taking Rainbow Trail across half the board to a distant purple square, leaving your toddler opponent in tears, whining, “No Fair!” Well, your toddler would be wrong since that was perfectly fair and within the rules. But you feel bad for young Timmy and so you allow him to change the rules mid-game so that no one can use Rainbow Trail, forcing you to plod slowly across all the regular squares, bored to tears because this stinking game takes forever.

Sometimes we make exceptions for bratty toddlers, but in real life it’s no fair to change the rules in the middle of the game. You may have built your entire Candy Land strategy around trying to pick the Orange square card first. It’s not fair to block you from Rainbow Trail after the game has started.

The same is true in business. Businesses hire employees or retain independent contractors according to the rules in place when they make those decisions.

An important ruling last week threatens to change the Independent Contractor vs. Employee rules midway through the game — but this is no game.

Remember here where we wrote about the California Supreme Court’s 4/30/18 Dynamex decision, which suddenly made it much harder to have a legitimate independent contractor relationship under California wage and hour law? Things just got worse.

A California Superior Court just ruled that the new Dynamex ABC Test, which turns many contractors into employees, now applies to more California employment laws and now applies retroactively. In other words, if you were following the law that applied at the time you classified your contractor as a contractor, this court says you can now be held retroactively liable for misclassification if you didn’t meet the Dynamex ABC Test, even though that test did not yet exist!

[And yes, like so many Independent Contractor vs. Employee lawsuits, this is another stripper case. Allow me to interrupt this post with an observation about strippers — and this is not going in the direction you think it is. Stripper cases keep making bad law for businesses. Strip clubs that treat strippers (“dancers”) as independent contractors keep getting smacked down, with courts finding that the dancers are really employees, not independent contractors. And so here we go again. Another stripper case, and another bad ruling for businesses. But this ruling may affect all businesses in California, including those who do not hire pole dancers.]

There are two troubling aspects of this decision: (1) that the Dynamex ABC standard applies retroactively, and (2) that the ABC Test applies to a broader range of claims than the California Supreme Court had said.

Let’s deal with the retroactivity part first. The retroactive ruling means that — at least according to this court — businesses should be held accountable if they failed to satisfy the Dynamex ABC Test before that test was invented. In other words, businesses who treated workers as independent contractors for wage and hour purposes before the 4/30/18 Dynamex ruling may now be liable for independent contractor misclassification if they didn’t meet the Dynamex ABC Test — even though the ABC Test did not yet exist!

Now let’s look at the expanded scope part of the ruling. This court ruled that the Dynamex ABC Test applies to PAGA claims, applies to meal and rest break claims, applies to claims alleging failure to provide accurate itemized wage statements, failure to keep accurate records of hours worked, failure to reimburse expenses, and improper deductions from wages. While the California Supreme Court in Dynamex had applied the ABC Test to meal and rest breaks, it did not go so far as to say the ABC Test applied to the obligation under Cal Labor Code section 2802 to reimburse employees for all expenses. The California Supreme Court in Dynamex also did not say the ABC Test applies to PAGA claims.

Whether someone is an employee entitled to reimbursement of expenses under section 2802 has always been determined using the S.G. Borello balancing test, which is a right to control test that also considers other factors. The Supreme Court’s Dynamex decision did not say that the ABC Test should apply to section 2802 claims.

The defendants argued that the Borello test should be used to determine whether the dancers were employees for purposes of section 2802, but the court chose simplicity over following existing law. The court ruled that it’s confusing to apply different tests to different laws, and so the ABC Test should be applied to PAGA and section 2802 reimbursement claims, even thought the California Supreme Court said no such thing. Hey, sometimes law is hard. That doesn’t mean it should be disregarded.

This ruling is just a Superior Court decision — not a Supreme Court decision or a Court of Appeals decision — but it is immensely troubling. It has always been the case that different tests apply to different laws when determining whether someone is an employee or an independent contractor.

This decision essentially says “the heck with that, this stuff is too hard. Let’s just use one test for everyone, even though that’s not been the law.” I say: Not fair! Even more unfair, this court says, “let’s apply the new test retroactively,” as if California businesses should have known about a legal test that did not yet exist. According to this court, the defendant is going to be held responsible for violating a legal standard that did not exist at the time it acted.

Businesses in California that use independent contractors should be alarmed. These businesses need to re-assess their use of contractors immediately. The trend appears to be in favor of expanding the ABC Test. Businesses that have been (properly) relying on the prior Borello test for years may be in for a painful surprise. And it will be worse than finding out Rainbow Trail is suddenly closed.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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