July 13, 2018

Dynamex And the Joint-Employer Standard: What Test Applies?

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As most employers are undoubtedly aware, April’s dynamite Dynamex decision blew up the definition of “employer” for purposes of determining independent contractor status. The California Supreme Court utilized the newly adopted “ABC test” for determining whether an employer “suffers or permits” the work, thereby justifying classifying the worker an employee.  The knockout blow came in the ABC test’s second element: “that the worker performs work that is outside the usual course of the hiring entity’s business,” giving the ABC test the potential to significantly narrow the scope of workers properly classified as independent contractors.

Employers across California have been justifiably concerned that their own workers could be considered misclassified under the new test.  Staffing agencies faced an additional concern; that courts would apply the ABC test to their unique relationship with the companies to whom they provide employees.  While litigation about what “the usual course of the hiring entity’s business” is sure to abound, a California Appeals court quietly addressed a joint employment issue that could be a big win for staffing agencies in the post-Dynamex world.

ABC Test Does Not Apply to Joint Employer Test . . .

The case, Curry v. Equilon Enterprises, LLC, resolved two important questions: 1) whether the ABC test applies to the joint employer analysis; and 2) if not, how should courts analyze independent contractor status for joint employment purposes.

Here, the Appeals court analyzed the “engage” prong of the joint employer test – which considers whether a worker is an employee or independent contractor – using the eight-factor common law test.  After concluding the Defendant was not the Plaintiff’s employer, the court went on to address the Plaintiff’s argument that the ABC test should be used instead when analyzing the joint-employment “engage” prong.  The court concluded that the California Supreme Court had not intended for the ABC test to apply in the joint employer context.  Specifically, the court noted:

“In the joint employment context, the alleged employee is already considered an employee of the primary employer; the issue is whether the employee is also an employee of the alleged secondary employer.  Therefore, the primary employer is presumably paying taxes and the employee is afforded legal protections due to being an employee of the primary employer.  As a result, the policy purpose for presuming the worker to be an employee and requiring the secondary employer to disprove the worker’s status as an employee [as required in the ABC test] is unnecessary in that taxes are being paid and the worker has employment protections. . . Placing the burden on the alleged employer to prove that the worker is not an employee is meant to serve policy goals that are not relevant in the joint employment context.  Therefore, it does not appear that the Supreme Court intended for the “ABC” test to be applied in joint employment cases.” (emphasis added)

. . .Maybe

Employers should be aware, however, that the Appeals court then went on to briefly analyze the “engage” prong using the ABC test, concluding that the test was not met in that case.  Curry has not yet been appealed, but should the California Supreme Court grant a petition to review the Appeals court’s decision, it could be reversed, putting the stricter ABC test into place in the joint employer context as well.

What Curry Means for Employers

For now, this seems like good news for staffing and temporary placement agencies, as well as for employers who rely on independent contractors for a significant portion of their workforce.  That’s because the Curry decision indicates that the use of staffing agencies could shield the agency’s client from both joint employment and independent contractor liability.  This is because the Plaintiff-worker will be limited to arguing their proper classification – as joint employees and as independent contractors of the second potential employer – within the context of the joint employer framework.  Because the joint employer analysis uses the more generous common law test, rather than the markedly stricter ABC test to determine independent contractor status, employers can craft policies and practices that support their classification of a worker as an independent contractor.

Stefanie Renaud