The ABC Test established by Dynamex made it difficult for employers to classify workers as independent contractors for claims “under the wage orders.” But what does that really mean? Which cases are “claims under the wage orders?” Not surprisingly, the Labor Commissioner takes a very broad view of the ABC test’s applicability.

The Labor Commissioner oftentimes issues opinion letters on various topics within their jurisdiction (i.e., wage and hour questions). Courts are not required to follow the Labor Commissioner opinions, particularly when the Labor Commission changes its position on a topic, but most courts will at least afford the opinion some weight.

Earlier this year the Labor Commissioner issued an opinion regarding “Application of the “ABC” Test to Claims Arising Under Wage Orders.” The opinion discusses (or at least mentions) many of the cases interpreting the ABC test since Dynamex. Even if courts don’t follow the opinion letter, the Labor Commissioner will most certainly follow its own decision.

The Labor Commissioner points out that “Dynamex ties application of the ABC test to enforcement of obligations imposed by the wage orders.”

Because wage order provisions are not independently actionable (see Thurman v. Bayshore Transit Management, Inc. (2012) 203 Cal.App.4th 1112, 1132), the “obligations 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. In such cases, the IWC employer definitions are imported into the Labor Code provision.

[fn4] 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 [IWC] …”].)

The Labor Commissioner then sets out the types of claims that involved 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 shortages, 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.)

“But wait,” you may be saying, “didn’t Dynamex specifically exclude expense reimbursement claims from the ABC test?” No, it didn’t. The drivers challenged which test was applicable to their 2802 claim “insofar as that claim seeks reimbursement for business expenses other than business expenses encompassed by the wage order.” The issue of which test applies to expense claims other than those encompassed by the wage order was not before the court. To the extent the expense reimbursement claim is related to expenses encompassed by the wage order, the ABC test still applies.

The following quotes and cites from the opinion letter will hopefully clarify the Labor Commissioner’s view of which tests apply to which claims:

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.

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”].

We don’t know whether the ABC Test applies to section 203 claims for waiting time penalties. (see Garcia v. Border Transportation Group, LLC (2018) 28 Cal.App.5th 558,571, fn.11 [stating section 203 claim did
not “arise under the wage order”, and Futrell v. Payday California. Inc. (2010) 190 Cal.App.4th 1419, 1425, 1428-31 [applying “suffer or permit” standard to section 203, which could imply the ABC test applies].)

We will have to wait and see how the court and the legislature refine, limit or expand the ABC test. For now, the conservative approach means that employers in California should treat workers as employees–at least for wage and hour purposes–unless the hiring entity can prove 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.

If you have a question about classifying your workers, or if you believe you were incorrectly classified as an independent contractor, contact the Nuddleman Law Firm, P.C. Robert Nuddleman helps employers and employees comply with and enforce employment laws in California.

Original Article by Robert Nuddleman of the Nuddleman Law Firm, P.C.

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The Nuddleman Law Firm, P.C. represents employers and employees in a wide range of employment law matters. Much of his practice focuses on wage and hour issues, such as unpaid overtime, meal and rest break violations, designing or enforcing commission plans, and other wage-related claims. He also advises employers on how to avoid harassment and wrongful termination claims, and represents employees who have been victims of unlawful discrimination, retaliation or harassment. The Nuddleman Law Firm, P.C. helps employers develop good employment policies, and helps employers and employees with disability accommodation issues.