Dynamex Decision & California’s Gig Economy Face Off.
What, exactly does the recent Dynamex decision by the California Supreme Court say about the current status of evaluating the classification of employees versus independent contractors?
California is often at the forefront of legal trends when it comes to evolving and improving employee rights in the workplace. Usually, when a protection for a working man or woman comes into existence, it comes from the California courts or the California legislature. However, the latest protection for California workers shows the California Supreme Court playing catch-up with a number of other states, such as New Jersey, that already offer a generous definition of who is an “employee”, as distinguished from those who do not qualify for the attendant benefits that come with being an employee. The new, improved “employee” test is known as the “ABC Test,” and California employees can thank the recent California Supreme Court case, Dynamex Operations West, Inc. v. Superior Court (Cal. Supreme Court 4/30/18).
The decision is clearly a response from California’s courts to the upward swing of today’s “gig economy.”
Gig Companies Rely on Underpaid & Uninsured Labor
For all the lofty promises of freedom to set one’s own schedule and still make a living, the “sharing economy” has not fulfilled the latter commitment. These gig-based labor companies are currently enjoying massive success, but much of it is achieved on the backs of underpaid, uninsured workers who assume all the risks that mainstream companies ordinarily bear. The original gig economy idea was to let companies cut costs on workers compensation, health insurance and many other standard worker protections in order to increase profit. Many of these “disruptors” have gone so far as to write their code in such a way as to limit the pay of their employees intentionally by tweaking hours and incentives to keep any truly beneficial pay scale just out of reach of their workforce.
The Dynamex Effect
For years, California courts used a multifactor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989) (“Borello”) to determine whether a worker was an employee or an independent contractor. When the Court decided in Dynamex to switch from the Borello test to an “A.B.C” Test, they changed the playing field in California.
Under Borello, employers were to analyze the employer-employee relationship by:
- evaluating an employer’s “right to control” the means and manner of work performed;
- secondary factors such as ownership of necessary equipment with which to perform the job;
- looking at the understanding of the parties as to how they viewed the relationship.
The Borello test, although it represented the “common law” understanding for decades, was tossed out, and replaced by a new test.
California’s ABC Test
The Dynamex decision developed largely in response to societal changes brought about by the “gig economy” introduced by companies like Uber. Once the “gig economy” took off, lawsuits followed, challenging employers to compensate their so-called “freelance” gig workers under California law. These workers, they alleged, were, in fact, misclassified employees, not contractors. This class of workers who were not protected by labor laws, or eligible for the basic benefits provided to the rest of the nation’s workforce, looked to many to be employees who were being given a pretty raw deal by their employers.
After a spate of lawsuits, California’s Supreme Court decided that rather than deciding the status of these workers under the Borello factors, the ABC test should dictate whether or not these people were employees. That ruling prescribes that an employer bear the burden of proving that the worker is indeed an independent contractor.
To meet the burden, the hiring entity must prove the presence of each of the three ABC factors:
- that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
- that the worker performs work that is outside the usual course of the hiring entity’s business (which is a stricter version of Factor B than used in some jurisdictions) ; and
- that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
What will this new application of the law do to minimize the negative effects on workers of an economy based on the theory that any task can be broken into smaller and smaller increments to meet the needs of demanding consumers faster and faster paced lives?
The gig economy barely provides the “lucky” few with what they need, and has yet to address the shrinking workforce that will inevitably be created as a result of its disruption, as it nibbles away at the conventional workplace with “edgy” ways to replace America’s workers. As each traditional job is consumed by low-paid workers risking their future security to meet the needs of those who seek have their needs met ever more effortlessly, the market will unavoidably lure more and more workers trying to make ends meet by joining in. These people will eventually comprise the bulk of the workforce. Are we really going to abandon them to the whims of those who make billions off their backs while refusing to acknowledge that they are employees?
In California the answer according to Dynamex, is no. For now.