Dynamex Operations W., Inc. v. Superior Court of L. A. Cnty.

• Citation: 4 Cal.5th 903,232 Cal.Rptr.3d 1,416 P.3d 1
• Decision Date: 30 April 2018
• Docket Number: S222732
• Court: United States State Supreme Court (California)
• Parties: DYNAMEX OPERATIONS WEST, INC., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Charles Lee et al., Real Parties in Interest.

4 Cal.5th 903

416 P.3d 1

232 Cal.Rptr.3d 1

DYNAMEX OPERATIONS WEST, INC., Petitioner,

v. The SUPERIOR COURT of Los Angeles County, Respondent;Charles Lee et al., Real Parties in Interest.

S222732

Supreme Court of California.

Filed April 30, 2018

Counsel: Littler Mendelson, Robert G. Hulteng, Damon M. Ott, Philip A. Simpkins ; Sheppard Mullin Richter & Hampton, Paul S. Cowie ; DLA Piper and Ellen M. Bronchetti for Petitioner.

Orrick, Herrington & Sutcliffe, Andrew R. Livingston, Michael Weil, Lauri Damrell and Kathryn G. Mantoan for California Employment Law Council and Employers Group as Amici Curiae on behalf of Petitioner.

Horvitz & Levy, John A. Taylor, Jeremy B. Rosen, Felix Shafir and David W. Moreshead for Chamber of Commerce of the United States of America and California Chamber of Commerce as Amici Curiae on behalf of Petitioner.

No appearance for Respondent.

Pope, Berger & Williams, Pope, Berger, Williams Reynolds, A. Mark Pope ; Glancy Binkow & Goldberg, Glancy Prongay & Murray, Kevin F. Ruf ; Boudreau Williams, Williams Iagmin and Jon R. Williams for Real Parties in Interest.

Della Barnett, R. Erandi Zamora; Anthony Mischel ; Cynthia L. Rice, William G. Hoerger and Jean H. Choi for California Rural Legal Assistance Foundation, National Employment Law Project, Los Angeles Alliance for a New Economy, La Raza Centro Legal, Legal Aid Society-Employment Law Center, Asian Americans Advancing Justice-LA, Asian Americans Advancing Justice-ALC, The Impact Fund, Alexander Community Law Center, UCLA Center for Labor Research, Women's Employment Rights Clinic and Worksafe as Amici Curiae on behalf of Real Parties in Interest.

Duckworth Peters Lebowitz Olivier and Monique Olivier for California Employment Lawyers Association as Amicus Curiae on behalf of Real Parties in Interest.

Counsel: Judith A. Scott ; Altshuler Berzon, Michael Rubin, Barbara J. Chisholm, P. Casey Pitts ; Nicole G. Berner ; Nicholas W. Clark ; and Bradley T. Raymond for Service Employees International Union, United Food and Commercial Workers International Union and International Brotherhood of Teamsters as Amici Curiae on behalf of Real Parties in Interest.

David Balter for Division of Labor Standards Enforcement, Department of Industrial Relations as Amicus Curiae on behalf of Real Parties in Interest.

CANTIL-SAKAUYE, C.J.

Under both California and federal law, the question whether an individual worker should properly be classified as an employee or, instead, as an independent contractor has considerable significance for workers, businesses, and the public generally.¹ On the one hand, if a worker should properly be classified as an employee, the hiring business bears the responsibility of paying federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, providing worker's compensation insurance, and, most relevant for the present case, complying with numerous state and federal statutes and regulations governing the wages, hours, and working conditions of employees. The worker then obtains the protection of the applicable labor laws and regulations. On the other hand, if a worker should properly be classified as an independent contractor, the business does not bear any of those costs or responsibilities, the worker obtains none of the numerous labor law benefits, and the public may be required under applicable laws to assume additional financial burdens with respect to such workers and their families.

Although in some circumstances classification as an independent contractor may be advantageous to workers as well as to businesses, the risk that workers who should be treated as employees may be improperly misclassified as independent contractors is significant in light of the potentially substantial economic incentives that a business may have in mischaracterizing some workers as independent contractors. Such incentives include the unfair competitive advantage the business may obtain over competitors that properly classify similar workers as employees and that thereby assume the fiscal and other responsibilities and burdens that an employer owes to its employees. In recent years, the relevant regulatory agencies of both the federal and state governments have declared that the misclassification of workers as independent contractors rather than employees is 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.²

The issue in this case relates to the resolution of the employee or independent contractor question in one specific context. 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.³

In the underlying lawsuit in this matter, two individual delivery drivers, suing on their own behalf and on behalf of a class of allegedly similarly situated drivers, filed a complaint against Dynamex Operations West, Inc. (Dynamex), a nationwide package and document delivery company, alleging that Dynamex had misclassified its delivery drivers as independent contractors rather than employees. The drivers claimed that Dynamex's alleged misclassification of its drivers as independent contractors led to Dynamex's violation of the provisions of Industrial Welfare Commission wage order No. 9, the applicable state wage order governing the transportation industry, as well as various sections of the Labor Code, and, as a result, that Dynamex had engaged in unfair and unlawful business practices under Business and Professions Code section 17200.

Prior to 2004, Dynamex classified as employees drivers who allegedly performed similar pickup and delivery work as the current drivers perform. In 2004, however, Dynamex adopted a new policy and contractual arrangement under which all drivers are considered independent contractors rather than employees. Dynamex maintains that, in light of the current contractual arrangement, the drivers are properly classified as independent contractors.

After an earlier round of litigation in which the trial court's initial order denying class certification was reversed by the Court of Appeal ( Lee v. Dynamex, Inc. (2008) 166 Cal.App.4th 1325, 83 Cal.Rptr.3d 241 ), the trial court ultimately certified a class action embodying a class of Dynamex drivers who, during a pay period, did not themselves employ other drivers and did not do delivery work for other delivery businesses or for the drivers' own personal customers. In finding that the relevant common legal and factual issues relating to the proper classification of the drivers as employees or as independent contractors predominated over potential individual issues, the trial court's certification order relied upon the three alternative definitions of "employ" and "employer" set forth in the applicable wage order as discussed in this court's then-recently decided opinion in Martinez v. Combs (2010) 49 Cal.4th 35, 64, 109 Cal.Rptr.3d 514, 231 P.3d 259 ( Martinez ). As described more fully below, Martinez held that "[ ]o employ ... under the [wage order], has three alternative definitions. It means: (a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship." ( 49 Cal.4th at p. 64, 109 Cal.Rptr.3d 514, 231 P.3d 259.) The trial court rejected Dynamex's contention that in the wage order context, as in most other contexts, the multifactor standard set forth in this court's seminal decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d 399 ( Borello ) is the only appropriate standard under California law for distinguishing employees and independent contractors.

In response to the trial court's denial of Dynamex's subsequent motion to decertify the class, Dynamex filed the current writ proceeding in the Court of Appeal, maintaining that two of the alternative wage order definitions of "employ" relied upon by the trial court do not apply to the employee or independent contractor issue. Dynamex contended, instead, that those wage order definitions are relevant only to the distinct joint employer question that was directly presented in this court's decision in Martinez —namely whether, when a worker is an admitted employee of a primary employer, another business or entity that has some relationship with the primary employer should properly be considered a joint employer of the worker and therefore also responsible, along with the primary employer, for the obligations imposed by the wage order.

The Court of Appeal rejected Dynamex's contention, concluding that neither the provisions of the wage order itself nor this court's decision in Martinez supported the argument that the wage order's definitions of "employ" and "employer" are limited to the joint employer context and are not applicable in determining whether a worker is a covered employee, rather than an excluded independent contractor, for purposes of the obligations imposed by the wage order. The Court of Appeal concluded that the wage order definitions discussed in Martinez are applicable to the employee or independent contractor question with respect to obligations arising out of the wage order. The Court of Appeal upheld the trial court's class certification order with respect to all of plaintiffs' claims that are based on alleged violations of the wage order.

At the same time, the Court of Appeal concluded that insofar as the causes of action in the complaint seek reimbursement for business expenses such as fuel and tolls that are not governed by the wage order...