California: Borello Withstands the Specter of Dynamex’s “Dynamite” Effect

IMPORTANT NOTICE:

Governor Signs AB 5 to Codify Dynamex Decision

What does it mean for workers’ compensation cases?

As set forth in the commentary below to the Gray panel decision, Dynamex did not specifically overrule Borello or indicate an intent to modify its application in workers’ compensation cases. The language of AB 5 expresses an intent to codify the “ABC” test for determination of employee v. independent contractor status that the Dynamex Court expressly applied to the wage orders of the Industrial Welfare Commission, the provisions of the Unemployment Insurance Code and various (unspecified) provisions of the Labor Code. The bill also preserves the Borello test for various professions listed, such as real estate licensees, and in those instances in which the ABC test cannot be applied. Although the Governor’s signing statement demonstrates a strong desire to protect workers from misclassification (as independent contractor rather than employee), it does not attempt to resolve (or even acknowledge, for that matter), the tension between the ABC test and the Borello factors. It seems that, at least in the short-term, there will be a lot of litigation before the workers’ compensation courts in which the key question is which of the two tests should be applied. 

***********

Commentary to Gray panel decision:

It is axiomatic that the existence of an employment relationship is fundamental to the application of California’s workers’ compensation statutes. So it should come as no surprise that a great deal of litigation before the Workers’ Compensation Appeals Board concerns issues of employment. After all, the question of whether an entity is an employer of a worker and conversely, whether that worker is an employee of the entity are largely questions of fact and the stakes are high. What is surprising is confusion, even among Workers’ Compensation Judges (WCJ), as to the appropriate standard to determine if a worker is an employee or an independent contractor. The 2018 Supreme Court decision, Dynamex Operations W. v. Superior Court (2018) 4 Cal. 5th 903, 83 Cal. Comp. Cases 817 (Dynamex), is likely the cause of such misunderstanding. Dynamex prompted widespread speculation that the standard it set forth to determine an employment relationship would replace the decades-old test enunciated by the Supreme Court in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341, 54 Cal. Comp. Cases 80. A recent panel decision sets the record straight: Borello’s multi-factor analysis is the appropriate standard to be applied in workers’ compensation cases to determine the existence of an employment relationship. (See Dennis Gray v. Pathway Group, Inc., etc. et al., August 12, 2019, 2019 Cal. Wrk. Comp. P.D. LEXIS — (see PDF at end of this article).)

Dennis Gray sustained a back injury while working at Commercial Cooling Par Engineering, Inc. (Commercial Cooling). Gray came to be working at Commercial Cooling after he first submitted a job application to Pathway Group, Inc. (Pathway). Pathway required drug testing and provided Gray with a Pathway Employee Handbook. Gray was then assigned by Pathway to Commercial Cooling where he was given the job of assembler under the supervision of Commercial Cooling employees. Commercial Cooling also provided Gray’s tools and set his hours of work and work duties to be performed. Gray received his paycheck from a Commercial Cooling employee. The paycheck was enclosed in an envelope marked, “Pathway,” but the payor on the check was identified as Solvis Staffing Services (Solvis).

At trial neither the occurrence of Gray’s back injury nor his status as an employee was in dispute; rather, as the panel decision notes, the issue for determination was whether Commercial Cooling, Pathway and Solvis were all liable as joint employers of applicant. The WCJ found a general-special relationship between Pathway and Commercial Cooling, with Pathway as the general employer and Commercial Cooling as the special employer. He also found that Gray was not an employee of Solvis. Pathway and Commercial Cooling each filed Petitions for Reconsideration. Commercial Cooling argued that it is not jointly and severally liable (with Pathway) for workers’ compensation benefits. Pathway claimed that Gray was also an employee of Solvis.

The unanimous panel affirmed the WCJ’s decision except that it deleted the finding of joint and several liability between Commercial Cooling and Pathway, as recommended by the WCJ. Notwithstanding, the panel makes clear that it does not endorse the WCJ’s discussion of the employment finding to the extent that it relies on the “suffer or permit to work” language in Martinez v. Combs (2010) 49 Cal. 4th 35, 75 Cal. Comp. Cases 430, and Curry v. Equilon Enterprises LLC (2018) 23 Cal. App. 5th 289 [2018 Cal. App. LEXIS 466]. The panel points out that the “suffer or permit to work” standard applies only to the question of whether workers should be classified as employees or independent contractors for purposes of California’s Wage Orders, which impose obligations on employers relating to minimum wages, maximum working hours, and basic work conditions. (Dynamex, supra, 4 Cal. 5th at pp. 913-914.) The “suffer or permit to work” standard employs a three-prong analysis, commonly referred to as the “ABC” standard. Under this test, the worker is considered to be an employee of the hiring entity unless the entity proves the following: (1) that the worker is free from direction and control over the performance of the work; (2) that the work provided is outside of the usual course of the business for which the work is performed; and (3) that the workers is customarily engaged in an independently established trade, occupation or business. (Dynamex, supra, 4 Cal. 5th at p. 951.)

The panel explicitly rejects application of the ABC standard in workers’ compensation cases, emphasizing that the Borello standard remains the correct test to determine the existence of an employment versus independent contractor relationship. In contrast to the three-part ABC standard, Borello employs a multi-factor analysis with the principal factor being whether the entity for whom the service is being provided has the right to control the manner and means for achieving the desired result. Additional factors include: (1) the right to discharge at will; (2) whether the person performing the service is engaged in a distinct occupation or business; (3) whether the occupation or business is of a nature that is typically performed under supervision or by a specialist without oversight; (4) whether the tools or instruments used are provided by the person performing the service or the entity receiving the service; (5) the length of time involved in performing the service; (6) the method of payment; (7) the skill involved in the work performed; (8) whether the work being performed is part of the regular business of the entity; and (9) whether the parties believe they are creating an employer-employee relationship. (Borello, supra, 48 Cal. 3d at pp. 350-351.)

Finally, the panel disagrees with the WCJ’s analytical framework (i.e., employee v. independent contractor), noting that the disputed issue was not Gray’s status as an employee, but rather, whether Commercial Cooling, Pathway and Solvis were all liable as joint employers of applicant. To reach that determination, the panel applied well-established authority pertaining to general-special employment relationships. (Kowalski v. Shell Oil Co. (1979) 23 Cal. 3d 168 [44 Cal. Comp. Cases 134]; Marsh v. Tilley Steel Co. (1980) 26 Cal. 3d 486 [45 Cal. Comp. Cases 193]; Caso v. Nimrod Prods. (2008) 163 Cal. App. 4th 881) Based on that analysis, it concludes that ample evidence supports the WCJ’s finding that Pathway was Gray’s general employer and Commercial Cooling was his special employer.

Why is the Gray panel decision significant? Simply put, it clarifies all of the confusion following the Dynamex decision as to whether the ABC standard trumps the Borello standard. In the most straight forward manner, the panel states that Dynamex changed nothing; the three-decade old Borello standard is still the proper test to determine the existence of an employment relationship in workers’ compensation cases. If you aren’t convinced, take the time to re-read Dynamex. The Supreme Court went to great lengths to point out that the ABC standard applies only in the context of wage orders. Further, it reviewed the Borello decision in the most pains-taking of detail and never once expressed any intent to replace the multi-factor standard with the ABC test. The Borello standard is alive and well.

Practitioners should check the subsequent history of any cases before citing to them.

Any information or opinions contained in this commentary are not necessarily endorsed by LexisNexis® or its affiliates.

© Copyright 2019 LexisNexis. All rights reserved.