Dynamex Operations West, Inc. v. Superior Court
For California wage-order claims, a worker is presumed an employee unless the hiring entity proves all three prongs of the “ABC test” — adopting a far more worker-protective standard than the multifactor Borello test.
Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903
Misclassification
ABC Test
Independent Contractors
Wage Orders
Affirmed
In brief. The Court adopted the “ABC test” for determining whether a worker is an employee or an independent contractor for purposes of California’s wage orders. A worker is presumed an employee, and the hiring entity bears the burden of establishing all three prongs: “(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work . . . ; (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 Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, 916–917, 957.)
Facts
Dynamex Operations West is a nationwide package- and document-delivery company. (4 Cal.5th at pp. 914–915.) Before 2004 it classified its drivers as employees; that year it reclassified them as independent contractors, while the drivers continued to perform substantially the same delivery work. (Ibid.) Charles Lee and other drivers sued, alleging the reclassification was improper and that Dynamex owed them wage-order protections (overtime, expense reimbursement, and related obligations), and they moved to certify a class. (Id. at pp. 915–916.) The dispute required the Court to decide what standard governs employee status under the wage orders. (Ibid.)
Procedural history
The trial court certified a class, and the Court of Appeal largely upheld certification, applying the “suffer or permit to work” definition of employment from Martinez v. Combs (2010) 49 Cal.4th 35. (4 Cal.5th at pp. 916, 940–942.) The Supreme Court granted review and affirmed, taking the occasion to adopt the ABC test as the governing standard for wage-order coverage. (Id. at pp. 916–917, 964.)
Issue
What standard governs whether a worker is an employee or an independent contractor for purposes of the obligations imposed by California’s wage orders — the multifactor common-law test of S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, or a different standard derived from the wage orders’ “suffer or permit to work” language? (4 Cal.5th at pp. 913–916.)
Holding
The ABC test governs wage-order coverage. The test “presumptively considers” workers to be employees, “placing the burden on the hiring entity to establish” all three prongs to treat a worker as an independent contractor: “(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 . . . 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.” (4 Cal.5th at pp. 916–917, 957.) Failure to prove any one prong establishes employee status. Affirmed. (Id. at p. 964.)
Reasoning
1. The wage orders’ broad “suffer or permit to work” standard. The Court anchored its analysis in Martinez v. Combs, which had construed the wage orders to define “employ” to include “to suffer or permit to work.” (4 Cal.5th at pp. 940–950.) That language, drawn from child-labor statutes, was meant to reach the broadest category of working relationships and to prevent businesses from evading wage protections through how they characterize workers. (Ibid.) The remedial purposes of the wage orders — protecting workers and ensuring a level playing field for law-abiding businesses — supported a standard that does not turn on a manipulable multifactor balancing. (Id. at pp. 952–957.)
2. Why a presumption and a three-part test. The Court adopted the ABC test (used in other jurisdictions) to give the “suffer or permit” standard administrable content. (4 Cal.5th at pp. 955–964.) By presuming employee status and shifting the burden to the hiring entity, the test reflects the wage orders’ protective purpose and the reality that the hiring entity controls the relevant facts. (Ibid.) Each prong must be satisfied; the hiring entity’s failure on any one prong means the worker is an employee for wage-order purposes. (Id. at p. 964.)
3. Prong A — control. The worker must be “free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract . . . and in fact.” (4 Cal.5th at pp. 958.) This resembles, but is not limited to, the common-law control inquiry; a worker subject to the type and degree of control a business typically exercises over employees is an employee. (Ibid.)
4. Prong B — outside the usual course of business. The worker must “perform work that is outside the usual course of the hiring entity’s business.” (4 Cal.5th at pp. 959–961.) The Court illustrated: a retail store hiring an outside plumber or electrician engages someone outside its usual business, whereas a clothing manufacturer hiring work-at-home seamstresses, or a bakery hiring its cake decorators, engages workers in its usual course. (Ibid.) This prong is often decisive — and was central to the later debate over the gig economy, since drivers for a delivery company perform the company’s core service. (Ibid.)
5. Prong C — independently established business. The worker must be “customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.” (4 Cal.5th at pp. 961–962.) This contemplates a worker who has made an independent decision to go into business — taking steps such as incorporation, advertising, or offering services to the public — not merely one a hiring entity has unilaterally labeled a contractor. (Ibid.)
6. Application and certification. Applying the standard, the Court held the ABC test could be applied on a classwide basis for the wage-order claims, supporting certification, because prongs B and C in particular turn on the hiring entity’s business and uniform practices rather than individualized facts. (4 Cal.5th at pp. 962–964.) It affirmed the certification order. (Id. at p. 964.)
Significance
Dynamex revolutionized California worker-classification law. By replacing Borello’s manipulable multifactor balancing with a presumption of employment and the demanding ABC test for wage-order claims, it dramatically expanded who counts as an employee — with especially profound implications for the gig economy, where prong B is hard to satisfy. The Legislature codified and broadly extended Dynamex in Assembly Bill 5 (Lab. Code, § 2775 et seq., eff. 2020), applying the ABC test beyond the wage orders to the Labor and Unemployment Insurance Codes, subject to numerous occupational exemptions (later expanded by AB 2257) that revert to Borello. The Court held Dynamex applies retroactively in Vazquez v. Jan-Pro Franchising International, Inc. (2021) 10 Cal.5th 944. The voters then partially carved out app-based rideshare and delivery drivers via Proposition 22, upheld in Castellanos v. State of California (2024). For claims outside the ABC test’s statutory reach, Borello still governs. Dynamex is the indispensable starting point in any California classification dispute. See the Review’s coverage of the misclassification line.
Key quotes
The ABC test requires the hiring entity to establish “(A) that the worker is free from the control and direction of the hiring entity . . . ; (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, supra, 4 Cal.5th at p. 957.)
The test “presumptively considers” workers employees, “placing the burden on the hiring entity to establish” the contrary. (Id. at p. 955.)
Read the full opinion (California Supreme Court — full text) →
Practice pointer
Lead with prong B. For wage-order claims (and most Labor Code claims after AB 5), apply the ABC test and put the burden on the hiring entity to prove all three prongs — a worker is an employee if even one fails. Prong B (work outside the usual course of the hiring entity’s business) is frequently dispositive and easiest to prove for plaintiffs where the workers perform the company’s core service. Check whether an AB 5/AB 2257 occupational exemption applies, which reverts the analysis to Borello. For claims wholly outside the ABC test’s statutory scope, apply Borello. Remember Dynamex applies retroactively (Vazquez), and account for the Proposition 22 carve-out for app-based drivers (Castellanos). The ABC prongs’ focus on the hiring entity’s business and uniform practices supports class certification under Ayala.
Open questions
The boundaries of the ABC test continue to be litigated: the precise scope of AB 5’s many exemptions and which categories revert to Borello; the application of prong B to multi-sided platform businesses; and the interaction of Dynamex/AB 5 with Proposition 22 after Castellanos. The reach of Dynamex beyond wage-order claims before AB 5’s effective date, and its reconciliation with federal classification standards in multistate operations, also remain active questions.