labor code

California Appellate Court Rejects ABC Test for Non-Wage-Order Claims

Some positive news for those employers that retain independent contractors. On October 22, 2018, the California Court of Appeal for the Fourth Appellate District, held that the Dynamex “ABC” test (which we previously discussed here) to determine whether an independent contractor is an employee, only applies to wage order claims. But the case is a mixed bag and is a reminder that post-Dynamex, hiring parties bear a heavier burden to overcome the presumption that all workers are employees.

The case is Jesus Cuitlahuac Garcia v. Border Transportation Group, LLC, et al., involving plaintiff Jesus Garcia (“Garcia”), a taxi driver, who brought a wage and hour lawsuit against Border Transportation Group (“BTG”), with whom he drove taxi for several years. The trial court granted summary judgment for BTG, applying the decades-old multifactor S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) test and finding Garcia was an independent contractor, not an employee entitled to wage order protection. The trial court’s reasoning included that Garcia controlled the means and manner of his work and “could and did market his business in his own name.”

Garcia appealed, during which time the California Supreme Court decided Dynamex, adopting the “ABC” test to determine whether a worker is an employee. Under this test, a hired individual is presumed an employee and the burden lays entirely on the hiring party to rebut that presumption by showing:

  • 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;
  • that the worker performs work that is outside the usual course of the hiring entity’s business;
  • 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.

Turning first to Garcia’s wage order claims, the court focused on the “C” prong and found that BTG failed to carry its burden to show Garcia actually “provided services for other entities ‘independently’ of his relationship with BTG.” The court rejected BTGs reliance on Sebago v. Bos. Cab Dispatch, Inc., which focused the inquiry on whether the worker is permitted to establish an independent business operation. The court noted that Dynamex requires an “existing, not potential showing of independent business operation.” The court reversed summary judgment on the wage order claims.

But in positive news for hiring parties, turning next to Garcia’s non-wage-order claims, the court held the ABC test did not apply, and upheld summary adjudication as to those claims.[1] The court explained that the Supreme Court did not reject the more flexible, multifactor Borello test in all instances, and that Borello applies when a cause of action is predicated solely on the Labor Code, while the ABC test is properly limited to wage-order claims. The court reasoned that the Supreme Court “recognized that different standards could apply to different statutory claims…” and emphasized that “primacy of statutory purpose” should resolve “the employee or independent contractor question.” The court found “no reason to apply the ABC test categorically to every working relationship, particularly when Borello…remains the standard for worker’s compensation.” And because the parties did not identify a “a basis to apply Dynamex to [the] non-wage-order claims,” the court concluded that Borello “furnished the proper standard as to those claims” without analyzing their primary statutory purposes.

Orrick will continue to track interpretations of the Dynamex case as they are published. For the latest employment law updates, subscribe to the Orrick Employment Law and Litigation Blog.

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[1] Garcia’s non-wage-order claims included wrongful termination in violation of public policy, failure to pay overtime, and waiting time penalties.

Legislative Updates Employers Should Know About to Avoid Wringing in the New Year

The California legislature played an active role in 2015 by enacting new rules and amendments in many employment areas.  The following covers some of the key highlights, some of which became effective on January 1, 2016.

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And the Oscar Goes to . . . Equal Pay?  Arquette’s Oscar Speech Sparks Comparable Worth Bill in California

Just in time for Women’s History Month, California State Senator and Chair of the California Legislative Women’s Caucus, Hannah-Beth Jackson, introduced Senate Bill 358 (SB 358), which seeks to narrow the gender pay gap in California.  Citing best supporting actress Patricia Arquette’s recent Oscar acceptance speech where she called for, “wage equality once and for all and equal rights for women,” Senator Jackson hopes to turn that rallying cry into concrete legislation in California.

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California Court of Appeal Smacks Down Unfair Competition Claim Based on Cursory Pleading

In Aleksick v. 7-Eleven, Inc., California’s Fourth District Court of Appeal provided a stark reminder that claims brought under California’s Unfair Competition Law (“UCL”) must specifically invoke an underlying law or public policy in order to be properly pled.  The plaintiff in Aleksick alleged that 7-Eleven, which provides payroll services to its franchisees, used a payroll system that improperly converted partial hours worked from minutes to hundredths of an hour.  According to the plaintiff, this practice of “truncating” hours shorted employees a few seconds of time for every converted partial hour and thereby violated the UCL, which prohibits “any unlawful, unfair or fraudulent business act or practice.”  The plaintiff’s complaint, however, did not specify any underlying Labor Code section as a basis for plaintiff’s UCL claim.

The court affirmed the trial court’s grant of summary judgment for 7-Eleven on two grounds.  First, the court held that the plaintiff’s complaint failed to specifically allege a statutory predicate for the UCL claim of “unlawfulness,” and that plaintiff’s failure in this regard constituted a forfeiture of her UCL claim.  Second, the court held that, even absent forfeiture of the UCL claim, the claim necessarily failed against 7-Eleven because 7-Eleven was not the plaintiff’s employer.  Rather, under both the applicable Wage Order and the common law, the individual franchisee was the plaintiff’s employer.  As the court observed, only the employer has the duty to pay wages.  Thus, the plaintiff could not assert a UCL claim against 7-Eleven, whether based on an assertion of “unfair” or “unlawful” business practices.

Aleksick is a helpful decision for employers because it reinforces a pleading rule that is not always followed by plaintiffs’ attorneys: complaints alleging UCL claims must specifically invoke the statutory or public policy bases underlying the UCL claims.  It also could cause plaintiffs’ attorneys to think twice before naming franchisors in lawsuits involving allegations of unpaid wages.