Under the California Supreme Court case known as the Dynamex case (Dynamex Operations West, Inc. v Superior Court of LA, 4 Cal.5th 903 (2018)  which came out in April, 2018, it is now  much more difficult to qualify for Independent Contractor status.  A mere change in wording of an independent contractor agreement will often not be enough to get around the test announced in that case.

The test has 3 parts and is known as the ABC test, which consists of the following:

1. the worker is free from the control and direction of the hirer in relation to the performance of the work;
2. The Worker performs work that it outside the usual course of the hirer’s business; and
3. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hirer.

The part most  employers are having trouble with is part B, because under that part, if the job looks like it is being performed by the company to the outside world, then the person cannot be a contractor. In fact, part B of the test is gaining a reputation as the “Killer B” due to its huge impact in denying contractor status for those unable to pass its requirements.

Under part B of the test  you must view the IC relationship from the customer’s point of view.   Part B requires that the worker performs work that is outside the usual course of the hiring entity’s business.  If the contractor services look the same to the customer as the main business of the company, then it is unlikely that the contractor will qualify for independent contractor status.

The examples given in the Dynamex  case of contractors who still qualify are plumbers and electricians, which operate as a separate business, even though they are hired by the general contractor, and are known to be a separate business by the client. These types of businesses have traditionally been indendent contractors and under this ruling  they can still qualify as independent contractors.

There are currently two bills pending in the California State legistature regarding the Dynamex case.

First, in favor of the Dynamex test is AB-5, which “would codify the decision in the Dynamex case and clarify its application.”

See  https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB5  for the current status of this bill.

 

On the other hand, tThe bill known as AB-71, would get rid of the Dynamex ABC test.

See https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB71 for the current status of this bill, which was assigned to Labor & Employment committee on 1/17/19 and so is active at this time.

 

There was also a great podcast on  NPR’s Forum recently about the Dynamex case which you can also find at the link below:

https://www.npr.org/podcasts/432307980/forum

This podcast had a great discussion about the Dynamex case and the current status.

Stay tuned for further updates on this important issue for California businesses!

 

Denise Olrich