Dynamex Operations Corp V Superior CourtEdit
Dynamex Operations Corp v. Superior Court is a landmark California Supreme Court decision from 2018 that reshaped how workers are classified for wage-and-hour purposes in the state. At issue was whether drivers for a courier company were employees or independent contractors, a distinction with major implications for who pays payroll taxes, who provides workers’ compensation, and who bears liability for labor-law compliance. The court concluded that for wage-order claims, California should apply an objective standard known as the ABC test, effectively tightening the criteria for classifying a worker as an independent contractor and tilting the balance toward employee protections in many routine hiring arrangements. This marked a significant departure from the broader, multi-factor Borello framework that had governed such classifications for decades.
The decision sits at the intersection of labor regulation, business flexibility, and the evolving structure of work. It has reverberated through employers, workers, and policymakers in California and beyond, shaping debates about the proper scope of state regulation in a modern economy that increasingly relies on independent contractor arrangements and gig-like work. The case is a core reference point in discussions of how the state should balance worker protections with the incentives for entrepreneurship, innovation, and flexible employment.
Background and legal framework
Prior to Dynamex, California followed a multi-factor test developed in Borello v. Dept. of Industrial Relations that weighed numerous factors to determine whether a worker was an employee or an independent contractor. The Borello approach left substantial room for interpretation by courts and regulators, creating a patchwork of outcomes across industries. See Borello v. Dept. of Industrial Relations.
The court’s decision in Dynamex established that, for wage-order claims, the worker’s status should be determined by the ABC test. Under the ABC test, a worker is presumed to be an employee unless the hiring entity can prove all three of the following conditions: A - The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract and in fact. B - The worker performs work that is outside the usual course of the hiring entity’s business. C - The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The ruling emphasized that wage orders, which cover many sectors of labor activity, require this comprehensive assessment to ensure workers receive applicable protections such as minimum wage, overtime, meal and rest breaks, and workers’ compensation coverage. See Wage order.
In articulating the ABC test, the court drew on structural concerns about “misclassification”—when workers who should be treated as employees are labeled as independent contractors to avoid payroll taxes, fringe benefits, and regulatory compliance. This framing reflects a broader policy aim to close gaps that allow some firms to shift costs and risk away from the employer.
The court’s ruling and reasoning
The Dynamex majority held that the ABC test should apply for wage-order purposes, applying a stricter standard than the Borello test in determining who is an employee. The decision stressed that misclassification undermines workers’ rights and creates competitive distortions among businesses that comply with labor standards versus those that do not.
The Court’s reasoning focused on the practical effects of misclassification for wage-and-hour protections, looking for a clear, uniform standard that could be applied across industries. The ABC test is designed to reduce subjectivity and provide more predictable results for both workers and employers operating within California’s regulatory framework.
The ruling also clarified that the “usual course of business” prong (B) targets the economic realities of the hiring relationship, not merely the labeled job title, and the “independently established trade” prong (C) requires workers to have a separate ongoing enterprise context beyond the specific engagement in question.
The decision did not categorically render all workers as employees; instead, it provided a rigorous framework to determine when an independent contractor arrangement survives under wage-order law. See Independent contractor and Employee.
Aftermath: legislative and policy responses
Following Dynamex, the California Legislature moved to codify the ABC test across a wider swath of labor classifications through AB 5. The bill sought to standardize the approach and minimize strategic misclassification by imposing the ABC test beyond wage orders, with numerous exemptions for specific industries and professions. See AB 5.
The broader policy debate centered on whether the stricter classification framework would stifle innovation, raise costs for small businesses and startups, and reduce flexible working arrangements that some workers value. Proponents argued that the change would level the playing field by ensuring workers receive appropriate protections; opponents warned of diminished opportunities in sectors that rely on flexible arrangements.
In response to concerns about workforce flexibility, California voters and lawmakers subsequently addressed the issue through Prop 22, a ballot initiative approved in 2020 that created exemptions for app-based transportation and delivery companies from AB 5’s independent contractor requirements. Prop 22 preserved a form of worker classification aligned with the gig-economy model while adding new benefits features for workers. See Prop 22.
The tension between labor protections and economic dynamism remains active, as policymakers and courts continue to review and revise how independent contractor status is defined in different sectors and under different regulatory regimes, including considerations of labor code provisions and wage orders. See California labor law.
Controversies and debates
From a market-oriented perspective, Dynamex and the subsequent AB 5 framework are seen as clarifying, predictable rules that reduce regulatory arbitrage. The core argument is that clearer classifications protect workers from being deprived of essential benefits and protections while maintaining a level playing field for businesses that comply with the law. See Wage order and Labor law.
Critics argue that the ABC test imposes rigid constraints that inflate labor costs, reduce the supply of flexible work, and hamper innovation in the gig economy. They contend that many workers value the ability to choose when and how they work, and that the state should avoid imposing one-size-fits-all classifications on diverse business models. See Gig economy.
In the conservative policy conversation, proponents of stricter worker protections emphasize accountability and fairness in the workplace, especially against misclassification that shifts burdens onto efficient firms and taxpayers. Critics of this emphasis argue that excessive regulation can discourage entrepreneurship, limit job opportunities, and push some workers into less favorable arrangements. See Employment classification.
The debate over Prop 22 illustrates the ongoing tension between universal labor protections and flexible employment arrangements. Supporters of Prop 22 argued that the measure preserves worker earnings opportunities, creates limited but real benefits, and preserves the economic vitality of sectors built on independent contractor models. Detractors claim the exemptions undermine core protections and create a two-tier system of workers. See Prop 22.