Lee v. Dynamex Operations: Defining “Employee” in Misclassification Context

The California Court of Appeal ruled that independent contractor delivery drivers who were formerly classified as employees could rely on the California Industrial Welfare Commission’s (IWC) definition of “employee” for claims that fall within the scope of its wage orders. Lee v. Dynamex Operations West, Inc., No. B249546 (2nd Dist. Div. 7 Oct. 15, 2014) (slip op. available here).

The Dynamex plaintiff had filed the lawsuit in April 2005 on behalf of a class of approximately 1,800 drivers, after Dynamex converted the status of its drivers from employee to independent contractor in 2004. The suit alleged that drivers were still performing the same tasks as they had when classified as employees, with no substantive changes to how their work was performed or the degree of control Dynamex exercised, and, therefore, that the reclassification was in violation of California labor law. Slip op. at 2. After the trial court initially denied class certification, a ruling later reversed by the appellate court, the respondent superior court then certified the proposed class in 2011. Following that certification decision, Dynamex unsuccessfully moved to decertify the class twice and then filed a petition a writ of mandate to the court of appeal, arguing that the lower court “had improperly adopted the definition of ‘employee’ found in [IWC] wage orders to ascertain the status of class members . . . and had failed to use the common law test for distinguishing between employees and independent contractors.” Slip op. at 2 (internal citations omitted).

Wage Order No. 9, applicable to the transportation industry, defines “employ” to mean “to engage, suffer, or permit to work,” while an “employer” is defined as any person “who directly or indirectly . . . employs or exercises control over the ages, hours, or working conditions of any person,” the same language reviewed by the California Supreme Court in Martinez v. Combs, 49 Cal.4th 35 (2010). While acknowledging that it was not inappropriate to rely on the common law standard to determine whether an employment relationship exists, the Martinez court embraced the IWC’s employee-centric definition, stating that they could not ignore the IWC’s broad regulatory definition because it would endanger the IWC’s ability to achieve its statutory purposes. The panel held that the plaintiff should rely on the IWC’s definition of “employee” for claims that fall within the ambit of the wage orders, including claims under unfair competition, failure to pay overtime compensation (1194), failure to provide accurate wage statements (226), and some claims for failure to reimburse for business expenses (2802), while claims that are not violations of the wage orders should apply the common law definition of “employee” under S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989). The panel ordered the trial court to reevaluate, in light of Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522 (2014), whether class certification was still appropriate for any claims that fell outside of Wage Order No. 9.

Dyanmex is the first case in California to directly state that the much broader Wage Order definitions of “employment” discussed in Martinez (rather than the common law definition under Borello) apply to wage-and-hour claims, so long as the claims fall within the reach of Wage Order No. 9.