Which claims the Dynamex ABC independent-contractor test applies to

STATE OF CALIFORNIA Gavin Newsom, Governor
DEPA RTM ENT O F INDUSTRIAL RELATIONS
Dit1isio11 of Labor Stn11dards E11force111e11t
Headquarters Office
1515 Clay S treet, Ste. 401
Oakland, C A 94612
Tel: (510) 285-2118 Fax: (510) 285-1365

                                               May 3, 2019

Ms. Dana Had!
Directing Attorney, Employment Rights Project
Bet Tzedek Legal Services
3250 Wilshire Blvd., 13 111 Floor
Los Angeles, CA 90010-1577
Re: Application of the "ABC" Test to Claims Arising Under Wage Orders

Dear Ms. Hadl:

In your letter dated April 26, 2019, you ask for clarification on whether the "ABC" test set forth
by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) 4
Cal.5th 903, would apply if a hiring business were to assert that a worker is an independent
contractor and not an employee. 1 To the extent that the claims rest on the " failure to fulfill
obligations imposed by" an applicable Industrial Welfare Commission (IWC) wage order, the
ABC test applies. (See Dynamex, 4 Cal.5th at p. 942.)

The IWC Wage Order Definitions of " Employ," Including to "Suffer or Permit"
The applicability of the ABC test turns on whether the IWC employer definitions govern a
particular claim. (See id. at pp. 915-16, 942-43.) Under the IWC wage orders, the term
"employ" has three alternative meanings: (1) to exercise control over wages, hours, or working
conditions; (2) to suffer or permit to work; or (3) to engage, and create a common law
employment relationship. (Martinez v. Combs (2010) 49 Cal.4th 35, 64.)

Every wage order contains the same "suffer or permit" definitional standard. (See Dynamex,
supra, 4 Cal.5th at p. 937.) In Dynamex, the Supreme Court adopted the ABC test to determine
whether an individual is an employee within the meaning of "suffer or permit to work," or an
independent contractor. (Id. at p. 916.) The Court framed the issue presented as whether " the
wage order definitions of ' employ' and ' employer' discussed in Martinez are applicable to the
question whether a worker is properly considered an employee or an independent contractor for
purposes of the obligations imposed by an applicable wage order." (Dynamex, supra, 4 Cal.5th at
p. 916.) Thus, Dynamex ties application of the ABC test to enforcement of obligations imposed
by the wage orders.

Obligations of employers under the wage orders include those relating to overtime; minimum
wages; reporting time pay; recordkeeping (including itemized pay stub obligations); business
expense reimbursement for cash sho1tages, breakage, or loss of equipment; business expense
reimbursement for required uniforms, tools, and equipment; meal periods; and rest periods. (See,
e.g., Wage Order No. 1-2001, sections 3, 4, 5, 7, 8, 9, 11, 12.)

  The ABC test places the burden on the hiring entity to establish that the worker is an independent
  contractor. To meet th is burden, the hiring entity must establish each of the following factors: (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. (Dynamex, supra, 4 Cal.5th at p. 957.)

                                                                                 Letter to Ms. Had I, Esq.
                                                                                 May 3, 20 19 (Page 2)

Application of the ABC Test to Labor Code Claims
Decisions following Dynamex have reiterated that the ABC test applies "for purposes of the wage
orders," and have utilized the test for "wage order" claims.2 When a claim "derive[s] directly
from," or "rest[s] on" an obligation imposed by a wage order, the ABC test applies to determine
questions of employee status. (See Dynamex, 4 Cal.5th at p. 942.)

Thus, Dynamex and decisions following it have applied the ABC test to Labor Code sections
enforcing minimum wage, overtime, meal and rest breaks, and itemized pay stubs. 3 Because
wage order provisions are not independently actionable (see Thurman v. Bayshore Transit
Management, Inc. (2012) 203 Cal.App.4th 1112, 1132), the "obiigations imposed by a wage
order" do not appear only in the wage orders themselves. Wage order obligations are also
imposed by certain Labor Code provisions, which serve to enforce the wage orders. 4 In such
cases, the IWC employer definitions are imported into the Labor Code provision. 5 (See
Martinez, supra, 49 Cal.4th at p. 64 [IWC employer definitions govern Labor Code section 1194,
which creates private right of action to enforce the minimum wage]; see also Brinker Rest. Corp.
v. Superior Court (2012) 53 Cal.4th I 004, 1027 ["[t]o the extent a wage order and a statute
overlap, [courts] will seek to harmonize them"]; Cole v. East Bay Municipal Utility Dist. (N.O.

2 See, e.g., Garcia v. Border Transportation Group, LLC (20 18) 28 Cal.App.5th 558, 570-71 [Dynamex
only applies to "wage-order claims"]; Alvarez v. XPO Logistics Cartage LLC (C.D. Cal. Nov. 15, 2018,
No. CV 18-03736) 2018 WL 6271965, at 4 [Dynamex applies "for the purpose of wage orders"]; Karl v.
Zimmer Biomet Holdings (N.D.Cal. Nov. 6, 2018, No. C 18-04176) 2018 WL 5809428, at 3 [''ABC test
applies only to claims arising under Industrial Welfare Commission Wage Orders'']; Johnson v. Serenity
Transportation, Inc. (N.D.Cal. Aug. I, 20 18, No. 15-CV-02004) 2018 WL 3646540, at 11 [Supreme
Court recently adopted the ABC test '·for purposes of the wage orders''].
See Dynamex, supra, 4 Cal.5th at pp. 942, 967 [applying ABC test to Labor Code section 226 ( itemized
wage statements), and sections 510 and 1194 (oveitime provisions)]; Garcia, supra, 28 Cal.App.5th at pp.
563-64, 57 1 [ applying A BC test to Labor Code sections I 182. 12, I 194, I 194.2, and l 197 (various
minimum wage provisions, including liquidated damages), sections 226.7 and 5 12 (meal and rest periods),
and section 226 (itemized wage statements)]; Alvarez, supra, 20 18 WL 6271965, at 2, 4 [ applying A BC
test to Labor Code claims for violations of minimum wage and meal and rest periods (but not to business
expenses, itemized wage statements, waiting time penalties, and PAGA penalties)]; Karl, supra, 2018 WL
5809428, at *1, 3 [applying ABC test to Labor Code claims for unpaid wages, overtime, meal and rest
periods, itemized wage statements, and civil and statutory penalties (but not business expenses)).
4 Some Labor Code provisions expressly reference the substantive standards of the wage orders. (See, e.g.,
Labor Code section 1197 [''The minimum wage for employees fixed by the [JWC] or by any applicable
state or local law, is the minimum wage to be paid to employees .. .'']; section 1198 (''The maximum hours
of work and the standard conditions of labor fixed by the [IWC] shall be the maximum hours of work and
the standard conditions of labor for employees.'']; section 226.7 ["An employer shall not require an
employee to work during a meal or rest or recovery period mandated pursuant to an applicable statute, or
applicable regulation, standard, or order of the [!WC] ... "].)
Most Labor Code provisions do not contain a definition of employer. However, the Legislature explicitly
incorporated the IWC employer definitions into Labor Code provisions enforcing the minimum wage
when it increased the minimum wage, effective January I, 2017. (See Labor Code section I 182.12(b)(3)
(Stats. 2016, ch. 4 (SB 3), section 3); SB 3 Assembly Floor Analysis (Senate Third Reading), as amended
March 28, 20 16, at p. l [''this bill. .. [d]efines 'employer' ... (consistent w ith the definition contained in the
Industrial Welfare Commission Wage Orders)"].) For workers whose regular rate of pay is higher than
minimum wage (e.g., $25 per hour), the minimum wage is incorporated into the higher rate of pay as the
floor (e.g., the minimum wage of$1 I is part of the $25 earned per hour). A worker who is not paid at all
or is paid below minimum wage, regardless of the worker's higher hourly rate, experiences a minimum
wage violation. (See Armenta v. Osmose (2005) 135 Cal.App.4th 3 14, 324 [find ing that minimum wage
applies to each hour worked, where employer paid higher hourly rate and impermissibly averaged higher
rate over al I hours worked).)

                                                                 Letter to Ms. Had!, Esq.
                                                                 May 3, 20 19 (Page 3)

Cal. June 1, 2016, No.16-cv-00694) 2016 WL 3078856, at *3 [" it would be nonsensical to
conclude that the Legislature intended to exclude ... employees [covered by the wage order] from
the civil enforcement mechanisms [of the Labor Code] it adopted to ensure ... wage orders were
obeyed"].)

All IWC wage orders contain provisions enforceable through section 2802. (See, e.g., Wage
Order No. 1-2001 , §§ 8, 9.) Thus, reimbursement claims under section 2802 that enforce specific
requirements directly set forth in the wage orders are also governed by the ABC test. (See
Dynamex, supra, 4 Cal.5th at pp. 915-16, 942.)

Considerations Under Labor Code Section 203
California appellate courts have differed on whether the lWC "suffer or permit" definition
applies to section 203 claims for waiting time penalties. (Compare Garcia v. Border
Transportation Group, LLC (2018) 28 Cal.App.5th 558,571, fn.11 [stating section 203 claim did
not "arise w1der the wage order" and declining to apply the ABC test, but limiting its holding to
the record in the case "[i]n the absence of an argument" by the parties], with Futrell v. Payday
California. Inc. (2010) 190 Cal.App.4th 1419, 1425, 1428-31 [following Martinez and applying
"suffer or permit" standard to section 203].)

Whether courts considering application of the ABC test to section 203 will follow Garcia or
Futrell may hinge on the court's examination of how waiting time penalties serve to enforce
wage order provisions, as well as the statutory purpose behind the penalties. (See Dynamex, 4
Cal.5th at p. 935 ["statutory purpose [i]s the touchstone for deciding whether a particular
category of workers should be considered employees ... for purposes ofsocial welfare
legislation."] .) Section 203 concerns wages that are not paid at the time of termination from
employment. An employee who brings a claim under section 203 when, for example, she has
not been paid, was paid less than minimum wage, or was not paid overtime, uses section 203 to
enforce payment of her wages due. The broad remedial purpose of section 203 penalties - to
ensure the prompt payment of wages - has been noted by courts. (See J'vfamika v. Barca (1998)
68 Cal.App.4th 487,492 [quoting cases].) Thus, where section 203 serves to enforce the
underlying minimum wage and overtime obligations of the wage orders, application of the ABC
test to these claims would be appropriate. (See generally, Martinez, supra, 49 Cal.4th at pp. 57,
64 [explaining in context of minimum wage how enforcement of Labor Code serves to enforce
the wage order].)

This opinion is based exclusively on the facts and circumstances described in your request and is
given based on your representation, express or implied, that you have provided a full and fair
description of all the facts and circumstances that would be pertinent to our consideration of the
questions presented. Existence of any other factual or historical background not contained in your
letter might require a conclusion different from the one expressed herein. You have represented
that this opinion is not sought by a party to pending private litigation concerning the issue
addressed herein. You have also represented that this opinion is not sought in connection with an
investigation or litigation between a client or firm and the DLSE. Thank you for your inquiry.

                                    ristma Chung
                                  Special Counsel to the California Labor Commissioner