CLSA DYNAMEX SUMMARY
By Mike Belote
In April 2018, the California Supreme Court released its decision in
Superior Court. Dealing with the classification of employees vs. independent contractors, the decision struck like a thunderclap in Sacramento. In
Dynamex, the Supreme Court overruled decades of law articulated in the
Borello decision, and imposed a new test for determining which workers are employees and which are independent contractors.
Simply stated, the
Borello test involved a common law analysis of the entity’s control over the worker. The greater the degree of control over the manner and means of performing the work, the more the worker was an employee. The less the entity controlled the work, the more the worker could be classified as an independent contractor.
Dynamex, the Supreme Court imposed a new “ABC” test for classification of employees and independent contractors. The “A” test was essentially the common law issues of control. The “C” test was the degree to which the work traditionally has been performed by independent contractors.
The “B” test in
Dynamex is easily the most significant. The Court held that if the individual was performing work outside the usual course of business of the hiring entity, the worker could be an independent contractor. This suggests that if the person is performing work within the usual course of business of the entity, the worker is by definition an employee. In other words, if the hiring entity is performing land surveying services, and the worker is doing land surveying, the worker is an employee. Note that to be an independent contractor, the burden is on the hiring entity to satisfy
each test within the ABC analysis.
Immediately upon release of the decision, business groups representing dozens, if not hundreds of industries began lobbying for legislative changes to Dynamex. Obviously all manner of work, including the so-called “gig” economy (think Uber and Lyft), is affected by the decision. Even dancers in “strip clubs” have raised concerns about the case! On the other side, the labor community was equally adamant that the decision not be changed by the Legislature. With this standoff, no legislative action occurred in 2018.
Dynamex is one of the key issues being considered by the Legislature in 2019. AB 5 would codify the
Dynamex decision, while AB 71 would reverse the decision and restore the
Borello standard. While the situation is extremely fluid, it now appears that neither outright codification nor outright repeal of
Dynamex is the likely outcome. Rather, the Legislature is likely to search for some compromise in the middle, perhaps relating to work performed by licensed individuals who are clearly in separate businesses from the hiring entities.
Stay tuned for updates. CLSA is involved in the conversation, and we will have much more to report in the coming months.