About Us  |  Contact Us

California court applies ‘ABC test,’ finds taxi driver employee under wage order

By Ronald Miller, J.D.

Because an employer failed to demonstrate that a taxi driver “is customarily engaged in an independent established trade, occupation, or business” apart from his work for the employer, not that he was merely capable of such engagement, a California Court of Appeal concluded that the driver should be treated as an employee for purposes of Industrial Welfare Commission (IWC) Wage Order No. 9. In Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court adopted the “ABC” test for clarifying the employee-independent contractor question as to wage order claims. In this instance, the employer did not meet its burden to show no triable issue of material fact as to the driver’s wage order claims under part C of the ABC test. However, the appeals court reached a different result as to the non-wage order claims to which Dynamex does not apply (Garcia v. Border Transportation Group, LLC, October 22, 2018, Dato, W.).

The City of Calexico regulates the local taxicab industry. City authorities set rates, approve taxi color schemes and markings, and inspect vehicles. To operate a taxi service, a person or business must obtain a certificate from the city council. Each certificate in turn authorizes a certain number of vehicle permits. The municipal code contemplates different business models for taxicab service. A driver can operate a taxicab as an employee or he can independently contract with a vehicle permit owner to operate the taxicab.

Vehicle permit lease. The employer owned 30 of the 45 vehicle permits issued by the city. Beginning in 2009, the plaintiff worked as a driver for the employer. He leased a vehicle permit from the employer for about $520 per week, and signed up for an optional radio dispatch service costing $350 per month. The plaintiff was labeled as an independent contractor under the terms of the lease, which disavowed any employment relationship.

When the engine in his taxicab failed in August 2013, the driver started leasing a vehicle from the employer for $65 per 12-hour shift, on top of existing vehicle permit and radio dispatch fees. The driver stopped working for the employer in April 2014, following an incident in which he was required to pay an additional $65 shift charge for returning a leased vehicle an hour late. The driver claimed that he was prevented from renewing his lease, but the employer maintained that he elected not to renew it.

In 2015, the driver sued the employer for various wage and hour violations, asserting eight causes of action, including wrongful termination, failure to pay minimum wage and overtime, failure to provide meal and rest breaks, and unpaid wages under the wage order, among other claims. The employer moved for summary judgment contending that all eight causes of action failed because the driver was an independent contractor. The trial court agreed and granted the motion. The driver appealed.

Distinguishing “employee” from “independent contractors.” After briefing of the driver’s appeal was complete, the California Supreme Court issued Dynamex Operations West, Inc. v. Superior Court, which addressed the employee-independent contractor question as to wage order claims. The employer argued that even under Dynamex, the driver was an independent contractor. However, the appeals court concluded that summary adjudication was erroneous as to the claims based on the IWC wage orders. The employer did not meet its burden to show that the driver “is customarily engaged in an independent established trade, occupation, or business.”

In this case, the IWC’s Wage Order No. 9 defined the scope of the employment relationship as to some of the driver’s claims. Wage Order No. 9 regulates minimum working conditions for “employees” in the transportation industry. In Dynamex, the court applied the “suffer or permit to work” definition of employment, instead of the “control” test, to evaluate class certification for wage order claims. The “suffer or permit to work” definition fit the broad remedial purpose of wage orders to protect workers, shield law-abiding businesses from unfair competition, and prevent shifting the costs of ill effects to workers to the public at large.

ABC test. Next, the Dynamex court considered what test applies to evaluate the employee-independent contractor question under the “suffer or permit to work” definition of “employ.” The court adopted the three-part “ABC” test used in many other jurisdictions to decide whether a worker is a covered employee rather than an independent contractor. The ABC test “allows courts to look beyond labels and evaluate whether workers are truly engaged in a separate business or whether the business is being used by the employer to evade wage, tax, and other obligations.”

Under the ABC test, a worker is presumed to be an employee, unless the hiring entity established: (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; and (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.” A hiring entity’s failure to satisfy any one of the three parts establishes that the worker should be treated as an employee for purposes of the wage order.

Applying the approach taken in Dynamex, the court concluded that it was logical to apply the “suffer or permit to work” standard (and the ABC test that explicates it) to wage order claims. Of the eight causes of action alleged by the driver, five arose under the wage order: unpaid wages, failure to pay minimum wage, failure to provide meal and rest periods, failure to furnish itemized wage statements, and unfair competition. The driver’s remaining claims did not arise under the wage order.

Dynamex changed the appropriate standard for determining whether the driver was an employee entitled to wage order protection, or an independent contractor who was not. Focusing on part C of the ABC test, the court concluded that the driver was not “an individual who independently has made a decision to go into business for himself or herself” and “generally takes the usual steps to establish and promote his or her independent business.” Pursuant to municipal regulations, the driver obtained a driver’s permit that was “limited such that it may be used by the driver only while employed by a specified taxi company.” If he switched companies, he would need a new permit bearing the new company’s name. Because the employer failed to present evidence that the driver in fact provided services for other entities “independently” of his relationship with it, the employer failed to meet its burden to establish part C of the ABC test. Accordingly, summary adjudication was improper as to the wage order claims.