California Independent Contractor Rules Collapse in Confusion

San Diego, CAIn 2015 Jesus Cuitlahuac Garcia, a taxi driver, filed a California unpaid wages lawsuit against Border Transportation Group (BTG) claiming unpaid wages, wrongful termination and a variety of related labor law violations. In October 2018, the California Court of Appeal, Fourth Appellate District handed Mr. Garcia an apparently empty victory.

The decision, if it stands, may seriously limit the rights of workers wrongfully classified as independent contractors. Some observers anticipated that this spring’s decision in Dynamex Operations West, Inc. v. Superior Court was likely to be limited. Here we are, it seems.

How to Get Paid

Before diving into the legal weeds of whether a worker is an employee or an independent contractor, it is important to remember that these lawsuits are not about setting legal rules: they are about getting paid. They are often brought by low-wage workers who pick cucumbers, clean office buildings, deliver packages and drive taxis. No surprise, but it’s about money – especially minimum wage and overtime. These are also survival stories, and survival stories are famously messy.

Jesus Garcia initially leased a taxi medallion from BTG. BTG operates a couple of taxicab businesses, Border Taxi and Calexico Taxi, in Calexico, CA. They run back and forth over the border. Then Mr. Garcia’s 10-year-old Crown Vic blew its engine. Rather than leasing the medallion, he began to lease a car from BTG on a per shift basis. He quit, in apparent anger, after he was required to pay an additional $65 shift charge for returning the leased vehicle an hour late.

Does Dynamex or Borello Apply?

One of the issues raised in Mr. Garcia’s lawsuit was whether he was an independent contractor or an employee. Given his long and complicated relationship with BTG, both choices are plausible. But it makes a difference because employees are protected by California law in many ways; independent contractors are not.

In Dynamex , the California Supreme Court decided that, to show that a worker is an independent contractor, an employer must prove 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, the worker performs work that is outside the usual course of the hiring entity’s business; and
• the worker is customarily engaged in an independently established trade, occupation, or business.

This is hard to do.

The previous standard, announced in Borello and Sons v. Dept. of Industrial Relations , required weighing 12 factors, the most important of which was the degree to which an employer controlled a worker. The greater the control, the more likely the worker was an employee. The burden of proof was also on the worker to show that he or she was not an independent contractor.

The Dynamex rule favors employees. The Borello rule favors employers. Ever since April, employers and employer groups have been motivated to find a way to limit or overrule Dynamex because, for them, the decision represents a fundamental and unfavorable change in law.

The Complaint

Mr. Garcia’s Complaint lists eight counts:

• Wrongful termination in violation of public policy. (Lab. Code, §§ 923 [employees may organize], 6310 [retaliation for an OSHA complaint], 6400 [duty to provide a safe work environment], 1102.5 [whistleblower protection];
• Unpaid wages under the wage order. (Cal. Code Regs, tit. 8, § 11090.)
• Failure to pay minimum wage. (Lab. Code, §§ 1182.12 [minimum wage], 1194 [right of action], 1194.2 [liquidated damages], 1197 [duty to pay minimum wage].)
• Failure to pay overtime. (Lab. Code, §§ 510 [overtime], 1194 [right of action].)
• Failure to provide meal and rest breaks. (Lab. Code, §§ 226.7 [rest periods], 512 [meal breaks].)
• Failure to furnish accurate wage statements. (Lab. Code, §§ 226 [wage statements], 226.3 [civil penalties], 2699 [PAGA penalties].)
• Waiting time penalties. (Lab. Code, §§ 201?202 [wages and leave due upon departure], 203 [penalties].)
• Unfair competition (UCL), based on the foregoing violations. (Bus. & Prof. Code, § 17200 et seq.; Lab. Code, § 2699 [PAGA penalties].)

Notice this -- six are under the California Labor Code; one is under the Business and Professional Code and one is under Wage Order No. 9.

At an earlier procedural stage, the Superior Court of Imperial County applied the Borello rule, concluded that Mr. Garcia was an independent contractor and granted Summary Judgment to BTG. Then the California Supreme Court handed down Dynamex apparently changing the basic rules for deciding this question.

On appeal, the California Court of Appeal reversed the Superior Court. However, it concluded that only the Wage Order count should survive. It limited the new Dynamex standard to Wage Order claims. That leaves out the minimum wage and overtime claims brought under other sections of the law, which it held, should continue to be evaluated under the Borello rules.

It is not at all clear how the various areas of the law should work together now. Befuddlement reigns. And as for Jesus Garcia, it’s still an open question as to whether he will get paid, which was the point of the lawsuit in the first place.

What Now?

“Schizophrenic” is how some legal commenters describe the resulting state of affairs. If the situation is confusing for employers, it’s worse for workers, who have little guidance about their legal rights. Some have suggested that the California legislature will have to step in to resolve this confusion. This seems likely.