UK: California Supreme Court Delivers Blow To Use Of Independent Contractors

On April 30, 2018, the California Supreme Court dramatically changed the legal landscape for California's gig economy, which will have far-reaching consequences for California companies reliant on independent contractors.

On April 30, 2018, the California Supreme Court issued a sweeping decision dramatically changing the legal landscape for California's gig economy. In Dynamex Operations West Inc. v. The Superior Court of Los Angeles County, the Court considered whether the trial court properly certified a class of delivery drivers who claimed they were misclassified as independent contractors rather than employees. In determining that the trial court did not abuse its discretion in certifying the class, the Supreme Court scrapped a more flexible classification test that has been used for decades in California (a multifactor test known as the Borello test) and adopted the "ABC" test,  a standard that has its roots in determination of unemployment tax status in other states and presumes workers are employees instead of independent contractors. This extraordinary decision will have far-reaching consequences for California companies reliant on independent contractors and undoubtedly spur a landslide of litigation for years to come.

Dynamex Operations West Inc. v. The Superior Court of Los Angeles County


Prior to 2004, Dynamex, a nationwide package and document delivery company, classified drivers who performed pickup and delivery work as employees. In 2004, Dynamex adopted a new policy and contractual arrangement under which all drivers were considered independent contractors rather than employees.
In April 2005, a class action complaint was filed alleging that since December 2004, delivery drivers had been misclassified as independent contractors. Plaintiffs argued they continued to perform the same tasks as they had when classified as employees with no substantive changes to the means of performing their work or the degree of control exercised by Dynamex. They claimed the misclassification led to Dynamex's violation of the provisions of Industrial Welfare Commission (IWC) 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. The case worked its way to the California Supreme Court after Dynamex challenged an appellate court's ruling classifying Dynamex workers as employees based on the IWC's broad definition of "employee" for claims alleging a violation of a wage order.

It is important to note, as it could easily be missed, that the issue before the Court in determining what standard applies under California law in determining whether workers should be classified as employees or as independent contractors is confined to one specific context – application of California's wage orders. California's wage orders are quasi-legislative regulations promulgated by the state IWC that have the force of law. They impose obligations on employers relating to minimum wages, maximum hours and a number of basic working conditions like meal and rest breaks.

Competing Tests: Plaintiffs Argue Martinez and Defendants Espouse Borello

Throughout the litigation, plaintiffs argued that the appropriate standard or test for employment is that as set forth in Martinez v. Combs (2010) 49 Cal.4th 35. 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 permit to work, or (c) to engage, thereby creating a common law employment relationship."

By contrast, Dynamex took the position that the wage order definitions of "employ" relied upon by the trial court, as outlined in Martinez, are relevant only to the distinct question of joint employer status. Dynamex argued that in the wage and hour context, the multifactor test set forth in S.G. Borello & Sons Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 is the only appropriate standard for distinguishing employees and independent contactors.

One of Dynamex's arguments was that a "two-test" approach to the employee or independent contractor distinction would "invariably lead to inconsistent determinations for disparate claims under different labor statutes brought by the same individuals." In other words, an individual worker could potentially be misclassified as an independent contractor under the IWC "suffer or permit to work" standard and entitled to meal and rest periods, overtime, minimum wage, but not to expense reimbursements under Labor Code section 2802 under Borello. The Court dismissed this concern, stating "[a]ny potential inconsistency, however, arises from the IWC's determination that it is appropriate to apply a distinct and particularly expansive definition of employment regarding obligations imposed by a wage order." In other words, the Court prioritized providing broader coverage to workers than with ensuring consistent determinations of employment status.

The New Test: Interpreting "Suffer or Permit to Work" through Application of the "ABC Test"

Dynamex's final argument seemed to have the biggest impact on the Court's reasoning. Dynamex argued that a literal application of the suffer or permit to work standard "would bring within its reach even those individuals hired by a business — including unquestionably independent plumbers, electricians, architects, sole practitioner attorneys, and the like — who provide only occasional services unrelated to a company's primary line of business and who have traditionally been viewed as working in their own independent business."
The Court agreed that the literal language of the suffer or permit to work standard does not itself resolve the question of employee status. Thus, instead of a literal interpretation of the "suffer or permit to work standard," the Court outlined a new way to interpret the standard and adopted the so-called "ABC test" that is utilized in other jurisdictions (for a variety of purposes, but often in the unemployment insurance context), including Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, Vermont and Virginia. Under the Dynamex approach:

  • First, there is a presumption that the worker is an employee. The burden is on the hiring entity to establish that the worker is an independent contractor who was not intended to be included within the wage order's coverage.
  • Second, to meet this burden, the hiring entity must establish each of the three factors embodied in the ABC test:
  1. 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;B. That the worker performs work that is outside the usual course of the hiring entity's business;C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Failure to satisfy any one of the three parts means that the worker will be treated as an employee for purposes of the wage order.

A Very High Bar For Hiring Entities

Because of the lack of California law to use as precedent, the Court cited cases from other states to illustrate to how each part of the ABC test has been interpreted. The cases may be instructive of just how high the Court is setting the bar for California companies. Here are a few examples:

  • "Free from control" – In a Vermont case, a hiring entity failed to show that work-at-home knitters were not under the control of the entity when they worked from home, at their own pace and on the days and at the times of their own choosing when the entity dictated the pattern and style of knitting. In Washington, a truck driver was deemed not to be free from control when the hiring entity required the driver to keep the truck clean, obtain the entity's permission before taking passengers, to go to the entity's dispatch center to obtain assignments not scheduled in advance and could terminate the driver's service for tardiness or for violating other policies.
  • "Performing work outside the usual course of the hiring entity's business" – The Maine Supreme Court held that the harvesting of timber by individual workers was work performed in the usual course of business of the timber management company whose business operation involved contracting for the purchase and harvesting of trees, even when the timber company did not own any harvesting equipment. A court in New Hampshire found that the performance of live entertainers was within usual course of a business of resort which advertised and regularly provided entertainment. In Connecticut, an art instructor who taught art classes at a museum was deemed to have performed work within the usual course of museum's business where the museum offered art classes on a regular and continuous basis, produced brochures announcing the art classes, class hours, registration fees and instructor's names and discounted the cost of classes for museum members.
  • "Worker is engaged in an independently established trade, occupation, or business of the same nature as the work performed"  – The Court notes that in other states applying the ABC test, the fact that the hiring business permits a worker to engage in similar activities is not sufficient; the appropriate inquiry is whether the worker actually has an independent business or occupation. A Virginia court concluded that a hiring entity failed to prove that siding installers were engaged in an independent business where, although the installers provided their own tools, no evidence was presented that they had their own business cards, licenses, phones or business locations, or that they received income from any party other than the hiring entity.

Immediate Impact on Employers

The ABC test established in Dynamex is now the law of the land in California. In addition to liability for meal and rest break penalties, overtime, minimum wage, waiting time penalties and more, California imposes substantial civil penalties between $5,000 and $25,000 per violation on those that willfully misclassify, or willfully aid in misclassifying, workers as independent contractors.

The 85-page opinion is replete with language suspect of a company's motives in engaging independent contractors ("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"), and supportive of the adoption of the "exceptionally broad suffer or permit to work standard." With little recognition of the benefits of flexible, gig work, there is extended discussion of the objective of wage and hour legislation to protect "workers' fundamental need to earn income for their families' survival" and to accord workers "a modicum of dignity and self-respect."

Given the high stakes and sweeping language in the decision, virtually every worker in California who currently is classified as an independent contractor may need reexamination. As such, companies engaging independent contractors in California should work with counsel to revisit classification decisions and undertake a cost/benefit analysis of reclassifying workers in the near term. In addition, given the likely firestorm of litigation, the importance of strong arbitration agreements is front and center, doubling interest in the highly-anticipated US Supreme Court decision on mandatory arbitration agreements due to be published in the next month or so.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions