Why This Matters

The day after the Ninth Circuit Court of Appeals ruled that the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court applies retroactively (see here), California’s Division of Labor Standards Enforcement (DLSE) released an opinion letter concluding that Dynamex’s ABC test applies to both IWC Wage Order claims and certain Labor Code provisions that enforce Wage Order requirements. The California Court of Appeals has ruled that Dynamex applies only to claims brought under the IWC Wage Orders (see here) and the DLSE’s recent opinion letter seems to expand what that means.

While California state and federal courts are not bound by DLSE opinion letters (meaning they could reach a different conclusion as to exactly which California Labor Code claims fall under Dynamex), the DLSE’s opinion letter reflects the way that agency will be interpreting Dynamex moving forward. This will impact employers who face DLSE wage claims where employees contend they were improperly classified as independent contractors.

Background

In its opinion letter, the DLSE stated that, because wage order provisions are not independently actionable, “the obligations imposed by the wage orders do not appear only in the wage orders themselves. Wage order obligations are also imposed by certain Labor Code provisions, which serve to enforce the wage orders.” Therefore, the DLSE concluded that Labor Code provisions that implicate or “derive” from employer obligations under the IWC Wage Orders are also subject to Dynamex’s ABC test. The opinion letter specifically mentions the following Labor Code provisions:

• minimum wage (Labor Code sections 1182.12 and 1197);

• overtime (Labor Code sections 510 and 1194);

• liquidated damages (Labor Code section 1194);

• meal and rest periods (Labor Code sections 226.7 and 512);

• itemized wage statements (Labor Code section 226); and

• expense reimbursement claims (Labor Code section 2802).

With respect to waiting time penalties under Labor Code section 203, the DLSE said applying the ABC test to those claims would be appropriate “[w]here section 203 serves to enforce the underlying minimum wage and overtime obligations of the wage orders.”

The DLSE’s new opinion letter demonstrates the ever-expanding reach of California’s new employee-friendly contractor classification test, and all California employers would be well advised to examine their current contractor classifications in light of this recent development if they have not done so already.