WSTA Legal Counsel has provided this Overview of this precedential case decision and what it does to independent contractors (IC’s) and those that engage IC’s and are in a related business. The decision, if allowed to stand, could jeopardize the entire IC industry of millions of works across this state. Specifically we are most interested in how it will effect IC’s in inter and intra-state commercial transportation industries.
- Dynamex decision
- What did the California Supreme Court decision say?
- How does it impact our industry
- What is the Association doing in response?
- Litigation – Filing our own lawsuit
- Risk management techniques
- Individual business analysis
Consistent with numerous discussions, below are the issues surrounding the Dynamex decision.
- Dynamex Operations West, Inc. v. The Superior Court of L.A. County, No. S222732
- Decided by a 7-0 unanimous California Supreme Court on April 30, 2018
- Not final yet; court extended time to decide rehearing until 7/27/18
- Landmark decision that will drastically change the independent contractor business model in CA
- Adopted the “ABC” test for determining whether a worker is an employee or independent contractor under CA Wage Orders
- Dynamex is a nationwide package delivery company
- In 2004, Dynamex switched its drivers from employees to independent contractors
- Sued by class of drivers for misclassification
- Thus violated Industrial Welfare Commission Wage Order No. 9 (the applicable state wage order for the transportation industry)
- Wage orders explain and provide the wage, hour, and working condition requirements for specific industries
- In its 82-page decision, CA Supreme Court recast the history and intent of CA labor laws & independent contractor tests
- Court expressed its belief that workers in CA should generally be employees
- Abandoned existing Borello test for stricter ABC test used in MA & NJ
Court presumes everyone is an employee. To be an Independent Contractor, hiring entity must prove all 3:
- Worker is free from control & direction of hirer in connection with the performance of the work
- Worker performs work that it outside the usual course of hiring entity’s business; and
- Worker is customarily engaged in an independently established trade, occupation, or business
A. Worker is free from control & direction of hirer in connection with the performance of the work
- Similar to “right of control” old Borello test; Court looking at facts to see that person is free from the “type of degree of control a business typically exercises over employees”
B. Worker performs work that it outside the usual course of hiring entity’s business;
- Big problem for current business model in trucking
- Must show that the person works in an “independent, separate, and distinct business from the employer”
- Court’s examples:
- OK: retail store hires an outside plumber/electrician to fix its premises
- Not OK: clothing maker hires a work-at-home seamstress
- Not OK: bakery hires cake decorators for its cakes
C. Worker is customarily engaged in an independently established trade, occupation, or business
- Requires a showing that worker has “independently made the decision to go into business for himself”
- Examples: incorporation, licensure, advertisements
Employee vs. Independent Contractor
- If hiring entity fails to prove all 3 prongs of ABC test, then worker is an employee
- Employees are entitled to minimum wage, overtime, meal and rest breaks, wage statements, etc.
- Employers must pay payroll taxes, workers comp, unemployment, etc.
What does this mean for the trucking industry?
- Court virtually eliminated the independent contractor owner-operator business model that the industry has been using for decades
WSTA members will be forced to drastically alter their businesses, likely at a significant cost, or risk massive lawsuits and fines.