CA Supreme Court Dynamex Decision Changes Independent Contractor Laws
The California Supreme Court has released a unanimous decision for Dynamex Operations West, Inc. v. Superior Court that creates dramatic and instantaneous ripples in the state’s employment and labor laws. In particular, companies of all sorts need to reassess their definitions of independent contractors using a new “ABC Test” system. Depending on those reevaluations, it is possible a wide berth of companies will choose to no longer use independent contractors at all.
Key Details of the Dynamex Case
A class action filed for independent contractors employed by Dynamex is the source of the big legal shake-up. Dynamex is a courier service that called its drivers “employees” up until 2004, when it changed its structure and definition of its drivers to “independent contractors”. The drivers were required to complete all deliveries and routes in a given workday, but had the freedom to complete those tasks in whatever order they found best fit.
Problems arose when drivers were not given itemized wage statements, did not get reimbursed for work-related expenses, and did not receive overtime pay despite being handed delivery schedules that required more than 8 hours to complete. The employees-turned-independent-contractors banded together and filed the class action.
Borello Test Replaced by ABC Test
The Dynamex case did not only shed light on the company’s own problems, but instead brought independent contractors as an overall notion to the attention of the Courts. The California Supreme Court ultimately found the preexisting “Borello Test” to determine if a worker is an employee or an independent contractor to be insufficient. It announced within the Dynamex case the new system employers in California – and possibly the rest of the country if the case law becomes applicable nationwide – known as the ABC Test.
The ABC Test certifies a worker is an independent contractor if the hiring party ensures:
- “that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;”
- “that the worker performs work that is outside the usual course of the hiring entity’s business; and”
- “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.”
To put this into other words, an independent contractor is capable of making important work-related decisions on their own without having to gain approval from the parent company. An independent contractor must also perform a job not typically performed by the parent company. Lastly, an independent contractor is expected to have a background in the work requested by the parent company.
“Work Outside Usual Performances”
The second stipulation in the ABC Test absolutely carries the most magnitude. If a worker performs jobs usual of the parent company, then they are an employee, according to the California Supreme Court’s decision. This is the new lynchpin that defeats Dynamex’s argument that their drivers were not employees, as the company only performs delivery services.
Under the new rules, if Dynamex were to accurately describe someone as an independent contractor, that worker would have to perform any other work not related to delivery services, like plumbing repair. Due to the unlikeliness of Dynamex needing to hire someone regularly to perform non-delivery service jobs, the chances of the company having any independent contractors on-hand are now greatly diminished. The same can be said of any company in California. In effect, it became much more difficult to classify a worker as an independent contractor for practically every business in the state.
The Takeaway for Employers Across California
Are you an employer who uses independent contractors regularly? Stop what you are doing and apply the ABC Test to your workers. Are they still independent contractors, or should they be reclassified as employees? Even though the decision is new, you must comply immediately.
For all the guidance and legal counsel you will need as you conduct the ABC Test and see if you must restructure your business to remain in compliance, look no further than JRG Attorneys at Law. Our Monterey County employment law attorneys assist small businesses and multinational corporations in California understand state and federal labor laws so they can stay out of legal trouble. With decades of total legal experience under our belts, we are the team you can confidently rely on.
Contact our law firm today to schedule a consultation with our California business law attorneys.