ABC Test Applies To Labor Code Claims Related to California Wage Orders

Seyfarth Synopsis: On May 3, 2019, the California Department of Industrial Relations, Division of Labor Standards Enforcement (“DLSE”) issued an opinion letter regarding the applicability of the ABC test set forth in Dynamex to claims arising under the Industrial Welfare Commission (“IWC”) Wage Orders. The DLSE concluded that it will apply the ABC test to questions of employment status for all claims involving a failure to fulfill obligations imposed by the Wage Orders, including related claims arising under the California Labor Code.

 

The Question Posed

 

In Dynamex—a case concerning claims based on the Wage Orders—the California Supreme Court adopted the ABC test for determining whether a worker is properly classified as an employee or an independent contractor. Decisions following Dynamex have reiterated that the ABC test applies “for purposes of the wage orders.” The question on which the DLSE’s opinion was sought was whether the ABC test applies more broadly than the Wage Orders, including to related Labor Code claims.

 

The Opinion Letter

 

The DLSE noted that the applicability of the ABC test turns on whether the IWC’s employer definitions govern a particular claim. It pointed out that in Dynamex, the Supreme Court adopted the ABC test to determine whether an individual is an employee or independent contractor within the meaning of the term “suffer or permit to work,” a definitional standard in every Wage Order. Accordingly, the DLSE concluded that Dynamex necessitates the application of the ABC test to enforcement of all obligations imposed by the Wage Orders, such as overtime, minimum wages, reporting time pay, recordkeeping, business expense reimbursement for certain expenses, and meal and rest periods.

 

As to claims arising under the California Labor Code, the DLSE noted that Dynamex and the decisions following it have applied the ABC test to claims that derive from Wage Order provisions. Because the Wage Orders themselves are not independently actionable, the DLSE concluded that it would be appropriate to apply the ABC test to determine employment status with respect to Labor Code claims that serve to enforce the wage orders.

 

The DLSE observed that California courts are divided over whether the ABC test should be applied to determine employment status in cases involving claims for waiting time penalties under Labor Code section 203. As to these claims, the DLSE stated that the analysis turns on whether the claim is derivative of concurrent minimum wage and overtime claims: “Thus, where section 203 serves to enforce the underlying minimum wage and overtime obligations of the wage orders, application of the ABC test to these claims would be appropriate.” That is, the ABC test would apply to Section 203 except in the rare circumstance where a worker asserts a standalone Section 203 claim not premised on a Wage Order.

 

What the DLSE Opinion Letter Means for Employers

 

DLSE opinion letters, while not binding on courts, are considered by them. However, the California Supreme Court has repeatedly held that the DLSE’s interpretations are not entitled to deference ordinarily accorded to formal administrative regulations, and that courts must independently determine the meaning and scope of the provisions of the Wage Orders.

 

The DLSE’s opinion letter confirms that the agency intends to expand Dynamex’s broad sweep through its enforcement proceedings, thereby increasing the already-heightened regulatory pressure on companies that use independent contractors. Such businesses should take the DLSE’s enforcement posture into account when evaluating how to classify workers, and the potential exposure associated with such classification.