Counsel’s Corner: Impacts of Dynamex – What’s the Future of the Gig Economy?Posted on 23 October 2018
Dynamex Operations West, Inc. v. Superior Court (2018) is a pro-employee case that employers cannot ignore in this growing gig economy.
ICYMI: Background on Dynamex v. Superior Court
Dynamex was a unanimous California Supreme Court decision in which the justices made clear that it would protect the rights of workers and that a worker is presumed to be an employee unless the employer could prove that the worker is an independent contractor.
From the court’s perspective, in spite of the growing gig economy, workers engaged for work should be compared to other employees and not to other independent contractors when classifying them for an engagement of service.
The court also adapted the ABC test, a test for worker classification that is narrower and more difficult to pass for those entities seeking to prove they have engaged an independent contract in compliance with the test’s classification standards.
The Supreme Court’s position could be explained by its view that workers need to be protected in the era of the growing gig economy. Worker misclassification goes hand-in-hand with the massive increase of the gig economy and growth of entities utilizing independent contractors.
Worker misclassification is not acceptable for reasons including: (1) independent contractors are not covered by labor standards such as minimum wage, overtime, workers compensation and unemployment insurance and misclassification workers are deprived of these protections; (2) society also suffers when misclassification results in lost state and federal payroll taxes – this explains the fact that over 30 U.S. states have joined to work together on addressing worker misclassification; and (3) companies that misclassify workers undermine more responsible employers who face costs disadvantages arising from compliance with labor standards and responsibilities.
The ABC test is a strict and narrow test utilized by at least 20 other states in the U.S. The preference for this test is to avoid other multifactor tests which can arguably be manipulated.
In this context, businesses engaging workers as independent contractors should investigate if they meet all three of factors of the ABC test:
A. That the worker is free from the control and direction of the hiring entity in connection with the performance of work, both under the contract for the performance of the work and in fact; (Consider that the Court in Dynamex stated that if an independent contractor is doing the same work he did for a company that he did when classified as an employee then control is implicit).
B. That the worker performs the work that is outside the usual course of the hiring entity’s business; (Consider that B test is not satisfied simply because work is supplied outside the place of business and that “control” is inferred if services do not meet this factor. In addition, the court’s view is that this factor is met in a situation like a retail store retaining a plumber or electrician to perform maintenance work at the facility, which is clearly not a service normally provided by the company).
C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Dynamex is an employees’ rights decision that requires companies in the gig economy to examine their business model. It will apply to wage orders which regulate the terms and conditions of employees in all industries and occupations. There already are many misclassification cases that involve multimillion-dollar payouts, and state and federally imposed penalties. Many employers in California that use independent contractors must analyze their business models for compliance and potential liability.
Geoff Mohun is General Counsel and the Chief Compliance Officer for iWorkGlobal. He has a Juris Doctorate from John F. Kennedy School of Law and is a graduate of California State University, Chico. He was admitted to the State Bar of California in 1997. Connect with Geoff on LinkedIn.