Court of Appeal Clarifies Dynamex’s ABC Test for Classifying Independent Contractors Does Not Apply to Joint Employer Cases

The Court of Appeal in Curry v. Equilon Enterprises, LLC (2018) 23 Cal.App.5th 289 clarified the scope the ABC test used in California Supreme Court’s recent employment decision, Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. The Curry court concluded that the high court’s policy reasons for selecting the ABC test were uniquely relevant to the issue of allegedly misclassified independent contractors, and thus, does not apply in the joint employer context.

Sadie Curry is a gas station manager who, on her own behalf and on behalf of similarly situated employees, alleged she was jointly employed by Equilon Enterprises LLC, doing business as Shell Oil Products US (Shell) and A.R.S., the company that leased gas stations from Shell. Curry further alleged Shell failed to pay certain compensation and committed unfair business practices. The appellate court ultimately concluded Shell was not Curry’s employer.

The appellate court analyzed whether Curry was employed by Shell for purposes of the applicable Industrial Wage Commission (IWC) wage order using the three alternative definitions of “employ” set forth in another California Supreme Court joint employer case – Martinez v. Combs (2010) 49 Cal.4th 35. The high court in Martinez held, to “employ” under the IWC wage orders has three alternative definitions: (a) to exercise control over the wages, hours, or working conditions, (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship. 49.Cal.4th at 65. First, the Curry court determined that Shell did not control Curry’s wages, hours, or working conditions. The court then applied the common law employment test and concluded Shell did not control the details of Curry’s work to a degree sufficient to create a common law employment relationship. Lastly, the Court analyzed whether Shell suffered or permitted Curry to work, where the basis of liability is the employer’s knowledge of and failure to prevent the work from occurring. The Court concluded Shell did not have the ability to hinder Curry’s work and thus, could not have failed to prevent Curry from working.

In applying the “suffer or permit” standard, the court analyzed whether to use the ABC test set forth by the state Supreme Court in Dynamex. That test places the burden on a purported employer to establish: (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; (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 at 916-17.

The Curry court looked to the Supreme Court’s reasoning for applying the ABC test and determined that the policy considerations driving that decision did not apply in the instant case. The Dynamex court recognized that misclassifying workers as independent contractors is a serious problem in light of the potentially substantial economic incentives that a business may have in mischaracterizing some workers, which would give unfair competitive advantage to the business. Dynamex at 913. The court also recognized that wage and hour statutes and wage orders “were adopted in recognition of the fact that individual workers generally possess less bargaining power than a hiring business and that workers’ fundamental need to earn income for their families’ survival may lead them to accept work for substandard wages or working conditions.” Dynamex at 952. However, the Curry court observed, in the joint employer context, the alleged employee is already considered an employee of the primary employer. Thus, the policy purpose for presuming the worker to be an employee and requiring the secondary employer to disprove the worker’s status as an employee is “unnecessary in that taxes are being paid and the worker has employment protections.” Equilon Enterprises at 313-14. Accordingly, the court determined that the ABC test does not apply to joint employer cases. It is worth noting, in an abundance of caution, the court did apply the ABC test to the facts of the case but ultimately concluded Curry was not an employee of Shell and reiterated the ABC test was not applicable to the joint employer context.

The Equilon decision is a welcome clarification for employers as it not only limits the applicability of the far-reaching ABC test but also enables employers to structure business relationships in a way that limits liability for another hiring entity’s employees.