Garcia v. Border Transportation Group: CA Appeals Court Reaffirms Dynamex Req. that Employers Prove Independent Contractors Actually Have Existing Independent Business Operations

California appellate courts are beginning to make sense of Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018), which promulgated a new “ABC” test for determining whether independent contractors are misclassified for claims arising from wage orders. In one recent case, the Fourth Appellate District examined the C-prong of the ABC test, concluding that the plaintiff-appellant Garcia, a taxi driver, was improperly classified as an independent contractor under the ABC test. See Garcia v. Border Transportation Group, LLC, No. D072521 (4th District, Div. 1, Oct. 22, 2018) (slip op. available here).

The appellate court reversed summary judgment as to the wage order claims only (Garcia’s claims for unpaid wages, minimum wages, meal and rest periods, itemized wage statements, and unfair competition law claims derived from the foregoing). Slip op. at 3, and 22-23. The panel first considered how courts had differentiated employees and independent contractors at common law, turning to the “seminal California decision on this subject”—S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). The state Supreme Court in Borello held that “‘[t]he principal test of an employment relationship is whether the person to whom the service is rendered has the right to control the manner and means of accomplishing the result desired. . . .’” Slip op. at 15 (citing Borello, 48 Cal.3d at 350). Borello also found that the right to discharge at will without cause is strong evidence of an employment relationship and identified several “secondary indicia” that bear on employment status. Slip op. at 15-16.

Turning from the common law “control” test, the appellate court then considered the California Supreme Court’s discussion of “employ” as set forth in Martinez v. Combs, 49 Cal.4th 35, 64 (2010), which found that the wage orders encompass three alternative definitions, the broadest of which is “to suffer, or permit to work.” Slip op. at 18 (citing Cal. Code Regs., tit. 8, § 11090, subd. 2(D); Martinez, at 57–58). The appellate court noted Martinez’s finding that “[a] proprietor who knows that persons are working in his or her business without having been formally hired, or while being paid less than the minimum wage, clearly suffers or permits that work by failing to prevent it, while having the power to do so.” Id. (citing Martinez, at 69).

The appellate court then reaffirmed the California Supreme Court’s adoption of its own three-part ABC test to decide whether a worker is a covered employee or an independent contractor. Slip op. at 19 (citing Dynamex, at 956–957). Unlike a multifactor test, the ABC test “‘allows courts to look beyond labels and evaluate whether workers are truly engaged in a separate business or whether the business is being used by the employer to evade wage, tax, and other obligations.’” Id. (citing Dynamex, at 958 n.26). The ABC test presumes that a worker is an employee unless the hiring entity establishes each of the following:

(A) 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; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Id. (citing Dynamex, 4 Cal.5th at 957).

The appellate court concluded that there was a triable issue as to whether Garcia was an employee since he was “presumed” to be such and since Border Transportation failed to show that Garcia fit the common conception of an independent contractor (Part C)—“an individual who independently has made the decision to go into business for himself or herself” and “generally takes the usual steps to establish and promote his or her independent business—for example, through incorporation, licensure, advertisements, routine offerings to provide services of the independent business to the public or to a number of potential customers, and the like.” Slip op. at 24-25 (citing Dynamex, at 962). As the appellate court explained, the question in part C is not whether the hiring entity prohibited or prevented the employee from engaging in an independently-established business, but whether it established that the employee actually had an existing, not potential, independent business operation. Id. at 26 (citing Dynamex, at 962 n.30).

Here, because the regulations in the plaintiff’s municipality tied each taxi driver’s permit to their employment at a specified taxi company, Garcia would have been required to obtain another permit with any new taxi company he drove for. The panel stated, “there is at best limited evidence he was even capable of providing services to a different taxi company under the regulations.” Slip op. at 27 (emphasis in original). Applying Dynamex’s ABC test, the appeals court reversed and remanded with instructions to enter a new order denying summary adjudication of Garcia’s wage order claims, allowing these claims to live on.

Authored By:
Molly DeSario, Senior Counsel
CAPSTONE LAW APC