California employers do not have to pay applicants for time or expenses related to taking a pre-employment drug test, when the employer made hiring contingent on passing the test, according to a recent decision. Under those facts, the US Ninth Circuit Court of Appeals held in Johnson v. WinCo Foods, LLC that the individuals were not yet employees, so their prospective employer thus did not owe them wages or expenses for taking the test.

Contingent Employment Offer

In Johnson, WinCo made a contingent offer of employment to successful applicants. It required a pre-employment drug test and background check. As the Ninth Circuit made clear, individuals must pass the test “before they can begin the duties of the job.” The company instructed applicants to report to a drug testing location. WinCo paid the costs of the drug test, but did not pay applicants for travel expenses or the time involved with taking the test.

The plaintiff filed a class action lawsuit for wages and expenses. After WinCo removed the case to federal court, that court granted class certification. Later, the federal district court granted WinCo summary judgment and dismissed the claims. It concluded that the class members were not employees when they underwent drug testing, so thus not owed wages or expenses.

Individuals Not Employees When Tested

On appeal, the Ninth Circuit affirmed. First, it rejected the argument that the individuals were employees when tested because WinCo allegedly “exerted sufficient control over the drug testing process to render them employees.” Although the company determined when and where testing would take place, and the scope of testing, this argument failed because “control over a drug test as part of the application process is not control over the performance of the job.” Instead of the class members performing work when taking pre-hire drug tests, the court saw those activities as part of pre-hire activities to establish their job qualifications.

Under California’s Industrial Welfare Commission wage orders, the California Supreme Court has held that an “employer” is an entity that “exercises control over wages, hours, or working conditions of any person.”  Martinez v. Combs, 49 Cal.4th 35, 64 (2010). This “control” test, which mainly has been applied in determining whether a joint employment relationship exists, looks to whether an alleged employer controlled the manner and means of accomplishing the desired service or producing a product as the principal test of an employment relationship. In an important distinction, the Ninth Circuit held that the control test “relates to control over the manner of performance of the work itself, not the manner of establishing qualifications to do the work.” Because the drug testing was for the purpose of determining job qualifications, “the class members were not performing work for an employer when they took the pre-employment drug test; they instead were applying for the job. They were not yet employees.”

The Ninth Circuit distinguished pre-employment drug testing (and other activities such as an interview, pre-employment physical examination, or skills testing) as “an activity to secure a position, not a requirement for those already employed.” Even if an employer controls the manner in which these activities take place, that circumstance does not convert applicants into employees. The court stressed that the class members “were not doing work for WinCo when they took the drug tests.” Rather, taking and passing the drug test was part of determining whether the applicants “were qualified to report to work” and be hired.

Additionally, the Ninth Circuit rejected the argument that the drug testing should be considered a condition subsequent to employment. Under a contractual theory, the plaintiff argued that an employment contract formed before the drug test, with the test a condition subsequent and allowing WinCo to terminate employment in the event of a failed test. WinCo, on the other hand, contended that the drug test was a condition precedent, meaning the applicant was not hired, and an employment contract was not enforceable until an applicant passed a drug test.

Under the circumstances, the court held the drug test was a condition precedent. The case involved no written contract, but a verbal employment offer. WinCo “went to great lengths” to make clear “that its job offer was conditional,” including describing the test as “pre-employment” and informing applicants that “the pre-employment drug test is a condition of WinCo’s contingent job offer.” As a result, the Ninth Circuit held that individuals who accepted such offers “must have known that they were accepting an employment offer contingent on a successful drug test.” It thus concluded that the drug testing was a condition precedent, with class members not becoming employees “until they satisfied the condition of passing the pre-employment drug test.”  

Takeaways for Employers

Johnson is a favorable decision for California employers on a recurring issue that California state courts have not addressed in a published decision. Although this published decision is from a federal court, California courts likely may find it persuasive. The decision applied California authority, which the Ninth Circuit deemed “clear” on these questions.  

To avoid possible liability to applicants for wages and expenses, employers should make sure that drug testing and other activities for determining employment qualifications happen pre-employment, making expressly clear that any employment offer is contingent on passing drug testing or other requisites for hire. While employers can test skills, they should ensure that an applicant performs no productive work during any pre-hire process. Further, a recommended course would be to not have employees start work until after an applicant clears drug testing, a background check, or other requisites to determine qualification for a position. Employers should consult counsel on these issues, as situations may vary based on the facts.