Further Developments: Employee vs. Independent Contractor

employee vs. independent contractorThe California Court of Appeals issued a ruling last week that is a win for plaintiffs in wage and hour class actions.  In a case entitled Lee v. Dynamex, court ruled that the definition of an “employee” and the legal test for an employment relationship varies depending upon the type of claim asserted.  The broad definition under the California Wage Orders controls when the claims asserted arise from the Wage Order.  For claims outside of the Wage Order, the more restricted common test controls.  The ruling is good news for plaintiffs bringing class actions based upon employees being misclassified as independent contractors; at least if the claims asserted arise from a Wage Order.

The Wage Orders share common definitions, including the definition of employment. The word “employ” is defined as “to engage, suffer, or permit to work.” (Cal. Code Regs., tit. 8, § 11090, subd. 2(D).) An “employer” is defined 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.” (Id. at § 11090, subd. 2(F).) This definition was analyzed by the California Supreme Court in Martinez v. Combs (2010) 49 Cal.4th 35, 64 and the court concluded that “to employ” under the Wage Order definition, 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.” Id.  In light of these alternatives, it is far less difficult for a plaintiff to make the case that he or she was an employee as opposed to an independent contractor.  It also makes the test for class certification much easier than if the plaintiff is required to establish an employment relationship via the common law test.

Under the common law, the primary test of an employment relationship is whether the alleged employer has the right to control the manner and means of accomplishing the result desired. In other words, does the alleged employer retain all necessary control over its operations and the worker.  It is not necessary for the alleged employer to exercise the control; just to have the ability to exercise it. The right to control is examined using a multi-factor test.  A primary factor is whether the alleged employer can discharge the worker without cause. Other factors include (a) whether the worker is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee. See, e.g., Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522.

The court’s decision in Lee v. Dynamex should make it significantly easier for plaintiffs to get class certification on wage and hour claims that are based upon provisions in the Wage Orders.  It will also likely increase the effort creative plaintiffs’ lawyers put into arguing that a claim arises out of a Wage Order.  Of course, the more time lawyers spend on fighting back and forth over creative arguments, the more lengthy and costly the litigation becomes.

The Lee v. Dynamex case was originally filed in 2005, and the parties have spent the last nine years fighting over discovery issues and class certification.  In that time the case has been moved back and forth between the trial and appellate courts.  The parties’ litigation costs are no doubt in the stratosphere.  It is another example of why careful auditing, analysis and planning are absolutely vital any time a contractor relationship is contemplated.

The court’s decision can be viewed at http://www.courts.ca.gov/opinions/documents/B249546.PDF