California: Will Dynamex Dynamite the Borello Factors?

In 1989, the California Supreme Court issued the opinion of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341, 54 Cal. Comp. Cases 80, whereby a plethora of factors were considered to determine whether a worker was an “employee” or an “independent contractor” in a workers’ compensation case. The workers’ compensation community has been using these “Borello factors” ever since to analyze the issue of “employment.”

I. Dynamex’ “ABC Standard” to Determine Employment

A few months ago, the California Supreme Court issued a new “employment” decision that rocked the world of the entire labor community. In the case of Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, 83 Cal. Comp. Cases 817, the Court mandated that an “ABC” standard be utilized for determining whether a worker was an “employee” or an “independent contractor” in a wage order dispute.

Essentially, the Supreme Court crafted a new “ABC standard” for determining whether a worker is an “employee” or an “independent contractor.” If the “ABC standard” determines the worker to be an “independent contractor,” then a California wage order would not apply.

“Under the Dynamex [“ABC”] test, a worker is …an independent contractor to whom a wage order does not apply if:

(A) the worker is free from the control and direction of the hirer in connection with the performance of the work…

(B) the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) 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.” (emphasis added)

II. Facts in the Dynamex case

Dynamex Corporation is a general delivery service that uses a variety of methods, including individual drivers, to conduct their business. The Supreme Court applied the above “ABC standard” and concluded that the workers in the Dynamex case were employees. Initially, the drivers at the Dynamex corporation were characterized as employees. Then, abruptly, in 2004, the drivers were re-characterized as independent contractors. As a result, the Supreme Court couldn’t help but notice the following:

“A company that labels as independent contractors a class of workers who are not engaged in an independently established business in order to enable the company to obtain the economic advantages that flow from avoiding the financial obligations that a wage order imposes on employers unquestionably violates the fundamental purposes of the wage order.”

Thus, the Supreme Court began its opinion by acknowledging how important the distinction has become between employees and independent contractors. The Court recognized that there were strong economic incentives that might tempt a business to mischaracterize some workers as independent contractors. The Court then noted that this has become “a very serious problem, depriving federal and state governments of billions of dollars in tax revenue and millions of workers of the labor law protections to which they are entitled.”

III. Will the Dynamex “ABC” test Replace the Borello factors?

So was this distinction between employees and independent contractors so important, that the Supreme Court intended this new “ABC” standard be applied universally? “Did the Supreme Court intend to replace the Borello factors with this new “ABC standard”? These questions have been buzzing around the workers’ compensation community for weeks. However, the text of the Dynamex opinion appears to limit the application of the “ABC standard” to “wage order” situations, as follows:

“Here we must decide what standard applies, under California law, in determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders, which impose obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees.” (emphasis added)

The Supreme Court was quick to point out that their analysis in the Dynamex case applied specifically to California statutes involving wage orders. The Court even stated, “[t]he issue in this case relates to the resolution of the employee or independent contractor question in one specific context,” and that would be the “wage order” issue. (emphasis added) However, is it possible that the Supreme Court is sending the legal community a message that a new trend may be developing in this field? Maybe. Maybe not.

IV. Borello Factors

The Supreme Court provided an exhaustive analysis of their prior decision in the Borello case. Never once did they express an intent to replace that standard with the “ABC” test in workers’ compensation cases. In fact, in these three paragraphs below, they seem to infer just the opposite.

“The particular controversy in Borello, supra, 48 Cal.3d 341, concerned whether farmworkers hired by a grower to harvest cucumbers under a written “sharefarmer” agreement were independent contractors or employees for purposes of the California workers’ compensation statutes.

“We have acknowledged that the [Workers’ Compensation] Act’s definition of the employment relationship must be construed with particular reference to the ‘history and fundamental purposes’ of the [Workers’ Compensation] statute.”

“Borello calls for application of a statutory purpose standard [the Workers’ Compensation Act] that considers the control of details and other potentially relevant factors identified in prior California and out-of-state cases in order to determine which classification (employee or independent contractor) best effectuates the underlying legislative intent and objective of the statutory scheme [of workers’ compensation] at issue.”

The Supreme Court then itemized and extensively discussed the Borello factors seemingly in order to consider how best to construct their own “ABC” test to apply in “wage order” cases.

“The trial court described the Borello test as involving the principal factor of ‘whether the person to whom services is rendered has the right to control the manner and means of accomplishing the result desired’ as well as the following nine additional factors:

(1) right to discharge at will, without cause;

(2) whether the one performing the services is engaged in a distinct occupation or business;

(3) 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;

(4) the skill required in the particular occupation;

(5) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(6) the length of time for which the services are to be performed;

(7) method of payment, whether by the time or by the job;

(8) whether or not the work is part of the regular business of the principal; and

(9) whether or not the parties believe they are creating the relationship of employer-employee.”

As the trial court observed, Borello explained that “‘the individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.” After the court thoroughly picked apart the elements in Borello, they arrived at a new standard that incorporated the main factor in Borello, that is, the employeee’s “right of control” over the worker. This leads one to wonder if this new standard may become a new trend in workers’ compensation cases and, if so, would application of the new standard really make all that much of a difference?

V. WCAB’s pre- Dynamex Analysis of Employment

Summarized below are two recent, but pre-Dynamex, Noteworthy Panel Decisions (NPDs) where the trial judge determined the worker to be an independent contractor. At the Reconsideration Unit, the WCAB used a uniform format in both cases to analyze the employment issue as follows:

(1) The WCAB set forth the language of Lab. Code § 3351 which provided a definition of “employee.” This was followed by the language the presumption of employment statute Lab. Code § 3357.

(2) Next, the WCAB explained that “[a] worker must establish a prima facie case of "employee" status, but then the burden shifts to the employer to affirmatively prove that the worker is an independent contractor.”

(3) One by one, the “Borello factors” and most important, the Borello “right-to-control” test were analyzed, applying the unique facts of each case.

(4) Finally, the WCAB issued a determination regarding employment, or returned the matter to the trial level to develop the record.

The $64,000 question remains as to whether this “Borello factors” analysis will be revised, for post-Dynamex cases. And again, will it make a difference to the outcome?

VI. Garcia Case – Is a Truck Driver an Employee?

Garcia v. Am West Worldwide Express, 2017 Cal. Wrk. Comp. P.D. LEXIS 561

In the Garcia case, defendant operated a trucking business and used two types of drivers to conduct their business. They hired drivers who drove company trucks. These drivers were classified as “employees”. Defendant also used “owner-operator” drivers who drove their own trucks. These drivers were classified as “independent contractors”. Applicant in the Garcia case performed services for defendant by driving his own truck. He was therefore classified by defendant as an “independent contractor”.

At trial the WCJ agreed with defense and determined Mr. Garcia was an “independent contractor”. After a Petition for Reconsideration was filed by applicant, the WCAB analyzed the facts of the case using the uniform template above, including the Borello factors. The WCAB did not appear to be convinced that Mr. Garcia was, in fact, an independent contractor. The WCAB returned the case to the trial level to develop the record, particularly “on the issues of ‘right to control’ and any differences between the company drivers and the owner-operator drivers.”

If the facts of this case had been analyzed under the Dynamex “ABC standard” instead of the Borello factors, would the result have been different? “Under the Dynamex [ABC] test, a worker is …an independent contractor to whom a wage order does not apply if:

>…the worker is free from the control and direction of the hirer in connection with the performance of the work;” (Does defendant, Am West control the performance of Mr. Garcia?)

>“…the worker performs work that is outside the usual course of the hiring entity’s business;” (Is “trucking” Am West’s usual business? If so, is the service that Mr. Garcia provides “outside” that usual business?)

>“…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.” (Since Mr. Garcia is not barred from using his truck to perform transportation services for other companies, does that qualify his services as an “independent business”?)

These were pretty similar to the questions of the WCAB, when they returned the case to the trial level to develop the record.

VII. Morgan Case – Is Waste Management Operator an Employee?

Morgan v. Systems Operations Services, 2018 Cal. Wrk. Comp. P.D. LEXIS 36

Defendant Systems Operations Services’ (SOS) usual business was operating and maintaining wastewater treatment plants owned by other parties. In that capacity, defendant negotiated with Mr. Morgan to operate one of these wastewater treatment plants as an “independent contractor”. Mr. Morgan filed a cumulative trauma claim for injury to his wrist, shoulder and back ending 5/31/2014. Coincidentally, this was the same date, 5/31/2014, that defendant informed Mr. Morgan his services were no longer needed, since SOS was “being replaced as the contract operator.” At trial, the WCJ determined Mr. Morgan to be an “independent contractor”, after which applicant appealed.

Again, as in the Garcia case, the WCAB analyzed the facts of the Morgan case using the uniform template above, including the Borello factors, to determine that Mr. Morgan was an “employee,” and not an “independent contractor.”

Would the result be any different using the Dynamex ABC standard? “Under the Dynamex [ABC] test, a worker is …an independent contractor to whom a wage order does not apply if:

>…the worker is free from the control and direction of the hirer in connection with the performance of the work;” (Does defendant, SOS control the performance of Mr. Morgan?)

>“…the worker performs work that is outside the usual course of the hiring entity’s business;” (Is operating and maintaining wastewater treatment facilities defendant’s usual business? If so, is the service that Mr. Morgan provides “outside” that usual business?)

>“…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.” (Since Mr. Morgan’s only employment was through SOS, could his services qualify as those of an “independent business”?)

As in the Garcia case, these questions were quite similar to those of the WCAB, when they analyzed the issue and determined Mr. Morgan to be an employee of SOS.

VIII. Conclusion

There has been much discussion lately about the applicability of the Dynamex case to workers’ compensation issues. Although the Dynamex case is instructive in showing the community the trend that the higher courts are following, the language by the Supreme Court does not appear as if it was intended to be applied in the workers’ compensation setting. However, as the saying goes, the “trend is your friend.” It is incumbent upon all practitioners to study the language in Dynamex and assess how the Court arrived at its decision. It may provide a forecast for what lies ahead in this area.

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