A class of drivers for a same-day delivery company, Dynamex, claimed that they were misclassified as independent contractors and thus unlawfully deprived of employment protections under California’s wage orders.

[1] Their claims raised the question of what the appropriate standard was to determine whether workers should be classified as employees or as independent contractors under California’s wage orders.

[3] The decision inspired public debate and legislative action on this issue, which culminated when the California Legislature passed Assembly Bill 5 ("AB5") on September 11, 2019.

[7][8][9] These include laws governing minimum wages, overtime, meal and rest breaks as well as other working conditions of employers.

[8][11][9] Recognizing the seriousness of this problem, California has imposed substantial civil penalties for misclassifying workers as independent contractors, particularly for “willful” misclassification.

[13] The California Supreme Court built on this common law foundation when it issued S.G. Borello & Sons, Inc. v. Department of Industrial Relations, its seminal case on the subject.

[21][22] In Martinez, the California Supreme Court considered an action brought by a worker, alleging that his employer had violated a wage order applicable to the industry in which he worked.

[24] So, the Court looked to the wage order’s text to find three alternative definitions of employment for the purpose of the workers’ action: “(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.”[25] The defendant in this case, Dynamex, was a corporation that offered same-day courier and delivery services nationwide, including in California.

[4] But starting in 2004, the company chose to classify all of its drivers as independent contractors in order to achieve cost savings associated with avoiding the obligations that those laws impose.

[26] In January 2005, Charles Lee, the initial named plaintiff in this case, entered a written agreement with Dynamex to complete deliveries as an independent contractor.

[30] The Superior Court also found that the appropriate standard for determining whether workers are properly classified as independent contractors or employees for the purpose of wage orders was laid out in Martinez.

[35] Instead, Dynamex argued, the multi-factor common law test from Borello[16] controlled the determination of whether a hiring entity was an employer in the wage order context.

[4] In so holding, the Court first found that the “suffer or permit to work” standard was the appropriate one for determining whether particular workers are employees within the definition of an applicable wage order.

[39] And as she further noted, an inclusive standard protects law-abiding businesses from unfair competition and the public at large from accruing societal costs associated with workers who are paid less than a living wage or forced to work in poor conditions.

[43] Second, when a test has many factors, it becomes more malleable, allowing employers flexibility to structure their relationships with workers so as to avoid wage and hour liability.

[51] Second, with respect to part C of the test, the Court held that there was sufficient commonality of interest as to whether the drivers were engaged in an independently established trade, occupation, or business.

From that day on, we said we’d really like to work on this.”[53] The legislature also expressed its intent “to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law.”[54] Later versions of the bill extend the AB5 test to apply to various Labor Code provisions and wage orders as well as the unemployment insurance code.

[53] In particular, gig economy platforms like Uber, Lyft, and Doordash, whose business model depends on the classification of workers as independent contractors,[7] opposed the decision and the legislation from its inception.

[59][60] A coalition of these companies and their allies pledged $110 million to secure a ballot initiative to overturn the legislation,[53] an effort which included requiring its workers to publicly support the measure.