California Court of Appeal: Wage Order Definition of Employee Applies in Misclassification Class Action Suit | Practical Law

California Court of Appeal: Wage Order Definition of Employee Applies in Misclassification Class Action Suit | Practical Law

In Dynamex Operations W., Inc. v. Superior Court, the Court of Appeal of the State of California, Second Appellate Division, Division Seven (Court of Appeal) held that a putative class of delivery drivers who challenged their reclassification as independent contractors could rely on the Industrial Welfare Commission (IWC) definition of employee for purposes of claims that fall within the scope of California Wage Order 9-2001. The Court of Appeal held that for claims falling outside of Wage Order 9-2001, the common law (employer-focused) definition of employee should control and that the superior court should re-evaluate the case to determine whether class certification was appropriate, in light of Ayala v. Antelope Valley Newspapers, Inc..

California Court of Appeal: Wage Order Definition of Employee Applies in Misclassification Class Action Suit

by Practical Law Labor & Employment
Published on 28 Oct 2014 • California
In Dynamex Operations W., Inc. v. Superior Court, the Court of Appeal of the State of California, Second Appellate Division, Division Seven (Court of Appeal) held that a putative class of delivery drivers who challenged their reclassification as independent contractors could rely on the Industrial Welfare Commission (IWC) definition of employee for purposes of claims that fall within the scope of California Wage Order 9-2001. The Court of Appeal held that for claims falling outside of Wage Order 9-2001, the common law (employer-focused) definition of employee should control and that the superior court should re-evaluate the case to determine whether class certification was appropriate, in light of Ayala v. Antelope Valley Newspapers, Inc..
On October 15, 2014, in Dynamex Operations W., Inc. v. Superior Court, the Court of Appeal of the State of California, Second Appellate Division, Division Seven (Court of Appeal) held that the superior court was correct to allow a putative class of delivery drivers who challenged their reclassification as independent contractors to rely on the Industrial Welfare Commission (IWC) definition of employee for purposes of claims that fall within the scope of California Wage Order 9-2001 (Wage Order 9). The Court of Appeal held that for claims falling outside of Wage Order 9, the common law (employer-focused) definition of employee should control and that the petition for a writ of mandate should be granted to allow the superior court to re-evaluate whether class certification is appropriate, in light of Ayala v. Antelope Valley Newspapers, Inc.. (No. B249546, (Cal. Ct. App. Oct. 15, 2014).)

Background

Plaintiffs worked as delivery drivers for Dynamex Operations West, Inc. (Dynamex), a nationwide courier and delivery service. In 2004, Dynamex converted its drivers from employee to independent contractor status.
In 2005, the drivers filed a lawsuit claiming that the reclassification to independent contractor status violated the California law because:
  • The drivers were performing the same work as they performed when they were classified as employees.
  • There were no substantive changes to the degree of control that Dynamex exercised over the drivers.
In 2011, the Superior Court of Los Angeles County certified the proposed class of 1,800 drivers. Dynamex's motion to decertify the class was denied on two occasions.
Dynamex filed a petition with the Court of Appeal for a writ of mandate directing the superior court to:
  • Vacate its ruling denying the motion to decertify the class.
  • Enter a new order decertifying the class.
Dynamex also argued that the superior court improperly adopted the definition of "employee" from the IWC wage orders instead of the common law test to determine the employment classification of the class members. Dynamex argued that under the common law definition the class must be decertified because that test focuses on individual issues and would make litigation of the claims as a class action infeasible.

Outcome

The Court of Appeal granted Dynamex's petition in part. The court concluded that:
  • The superior court was correct to allow the plaintiffs to rely on the IWC definition of employee for purposes of claims that fall within the scope of Wage Order 9.
  • For claims outside of Wage Order 9's scope:
In reaching its conclusions, the Court of Appeal found that:
  • Under the common law, the principal test for determining whether a worker is an employee or independent contractor is whether the party receiving the service has the right to control the manner and means of accomplishing the result. Of primary importance is the level of control the hirer has over its operations, including the power to discharge a worker without cause.
  • Other common law factors include:
    • whether the individual performing the services has a distinct occupation or business;
    • whether the work is done by an unsupervised specialist or under the direction of the principal;
    • the skill required for the occupation;
    • which party supplies the tools, instrumentalities and place of work;
    • the length of time for the performance of the services;
    • whether the work is part of the regular business of the principal; and
    • whether the parties believe they are engaged in an employee or independent contractor relationship.
  • In Ayala, which featured similar issues to those in Dynamex, the California Supreme Court reversed an order denying class certification, holding that the trial court should have focused on the defendant's right to control, rather than how the right to control was exercised.
  • Wage Order 9 defines the word "employ" as "to engage, suffer, or permit to work." (Cal. Code Regs. tit. 8, § 11090).
  • In Martinez v. Combs, the California Supreme Court addressed the IWC regulatory scheme's impact on whether an employment relationship existed between farmers and merchants, noting that under the IWC definition, "employ" has three definitions:
    • to exercise control over wages, hour or working conditions;
    • to suffer or permit to work; or
    • to engage, creating a common law employment relationship.
    (49 Cal. 4th 35, 231 P.3d 259 (2010), as modified (June 9, 2010).)
  • The trial court did not err in allowing the certification of the class based on the IWC definition of employee (and properly applied Martinez in determining that the plaintiffs were employees within the meaning of the wage order) for the plaintiff's claims falling within the scope of Wage Order 9.
  • In light of Ayala, the trial court should re-evaluate whether class certification is appropriate for claims outside of Wage Order 9's scope.

Practical Implications

This case addressed the prominent issue of the misclassification of employees as independent contractors. Recognizing how an employee is defined under the applicable law is critical in determining whether the classification of workers is proper. Employers should familiarize themselves with the different definitions for employers and employees under the applicable statutes to determine whether a reclassification of job categories will implicate any wage and hour violations. As the misclassification issue is regularly visited, this case serves as a reminder that employers should continue to pay close attention to how their workers are classified, controlled, supervised and paid.