Dynamex or Borello:
Which Test Should You Use to Classify Employees?
Last year, the California Supreme Court delivered a landmark decision in the Dynamex case. This case issued a new test, the “ABC Test,” to determine a worker’s status as an employee or independent contractor. For almost 30 years prior to this decision, California businesses mainly relied on the Borello factors test.
Proponents of Dynamex argue California must staunchly defend its workers by classifying them as employees rather than independent contractors. This distinction protects them with fair wages, meal and rest breaks, and safe working conditions. On the other hand, critics of Dynamex argue that, while many states adopted a similar ABC test, those states implement a less strict test as to Element B (limited to locale) which still allows businesses to hire independent contractors. Element B of the “ABC Test” is almost identical to the second listed Borello factor (above). The California Supreme Court has taken its stance regarding which of the Borello factors is most important today.
Here’s an overview of the history of the Dynamex and Borello tests, and which circumstances require which test. For a specific example, visit our Dynamex case study.
Dynamex’s Stricter “ABC Test” is the New Standard
The California Supreme Court rendered its seminal Dynamex decision in April 2018, abandoning the Borello “right to control” test for wage order claims. Instead, it began to us the more restrictive “ABC Test”. As a result, a worker is presumed to be an employee rather than an independent contractor even before this test is applied.
That said, in October 2018, the California Court of Appeal clarified in the Garcia[1] case that the “ABC Test” only applies to wage order claims (for wages and benefits that arise under the wage orders issued by the Industrial Welfare Commission). Wage order claims include wage and hour disputes, overtime, meal and rest breaks, and disputes over other basic working conditions. They also include issues related to California Labor Code violations under the Private Attorneys General Act (PAGA) relating to class action lawsuits.
The ABC test may be satisfied in any order, but all three elements must be satisfied. Thus, courts typically start their analysis with Element B as it is easier to resolve because if it cannot be satisfied, the court will not continue with its analysis of the other elements. Unfortunately, the Dynamex court did not define “usual course of business,” creating ambiguity and leaving this element open to varying interpretations.
The Dynamex Court determined the newer, stricter “ABC Test” would apply retroactively (before the April 30, 2018 ruling). Hiring entities are now held accountable to classify workers as independent contractors under the “ABC Test,” even if those individuals were hired before the Dynamex ruling. Businesses should examine their current and past independent contractors with the new test to determine potential liability under Dynamex.
While Dynamex is labeled the leading authority in determining worker classification in the context of wage order disputes, other state and federal agencies, such as the Department of Labor Standards Enforcement (DLSE), have not yet adopted it.
Borello’s “Right to Control Test” Is Used for Non-Wage Order Claims
After Dynamex, the courts decided the previously-used “Right to Control Test” from the 1989 Borello case only applies to non-wage order claims (i.e., workers’ compensation, anti-discrimination, business expense reimbursements, wrongful termination, failure to pay overtime and waiting time penalties, etc.).
In the California Supreme Court’s decision in Borello, the court laid out a derivative of the common-law agency “Right to Control Test” to determine independent contractor status. This test focuses its analysis on whether the person or business to whom services are being rendered has the right to control the manner and means of performing the work.
In contrast to Dynamex’s required elements, courts will balance these Borello factors to determine whether a worker is an independent contractor. Courts will use both tests when there are wage order and non-wage order claims in a single lawsuit.
[1] Garcia v. Border Transportation Group, LLC (2018) 28 Cal.App.5th 558.
Contact a California Employment Lawyer for More Information
Misclassification of an employee in California is a very serious matter that can have a devastating impact on your business. As an employer, if you have concerns about misclassifying employees as independent contractors, contact an experienced employment law attorney today.
If you would like any additional information or have any other questions about employment law, feel free to contact us.