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September 13, 2019

Implications of Ruling on Gig Workers

Summary:

The ruling in California and a related bill in the assembly fit into a long-standing debate on who is a contractor and who an employee.

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What is remarkable about the debate over California Assembly Bill 5 (Gonzales) is how unremarkable the issues actually are in the debate over the Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903.

Of course, as has been well-documented, the Dynamex holding and AB 5 could disrupt the digital platform “gig” economy, and misclassification of employees as independent contractors is a vitally important issue. It has serious implications for the fundamental fairness of how businesses compete with one another and how we value and protect workers on whose endeavors our entire economy depends.

But the debate, while appearing in the digital marketplace as its latest forum, is multi-generational.

The Dynamex decision is the current law of California as it relates to classification (employee or independent contractor) disputes over wage and hour obligations of California employers. AB 5 is intended to codify this decision not only for wage and hour determinations but also for unemployment insurance obligations and workers’ compensation coverage. This legislative process has led to chaos, with a host of employers asking for dispensation from the “ABC” test borrowed from Massachusetts (and used in Illinois and New Jersey, among other states), arguing that the test should not really apply to, among others, dog groomers, hairdressers, real estate agents, truckers and insurance producers. The list goes on and on. The queue is as long as it was in Casablanca when desperate people were seeking exit visas at any cost from Rick’s Café Américain.

But Dynamex isn’t the product of the California Supreme Court sitting down together over lattes one afternoon and deciding, “Well, let’s change the law on classification disputes involving independent contractors and see what happens.” It was a final decision in which the trial court and the court of appeal used existing tests for independent contractor status to arrive at the conclusion that Dynamex workers were, in fact, employees. In other words, even though imposing the now infamous “ABC” test in California, the Supreme Court affirmed the decision of the court of appeal.
It is unfortunate, but not surprising, that Dynamex is being divorced from its facts in the current, overheated debate in Sacramento.

Perhaps the most important part of the court’s lengthy decision is found in this part of the factual record:

“Prior to 2004, Dynamex classified its California drivers as employees and compensated them pursuant to this state’s wage and hour laws. In 2004, Dynamex converted all of its drivers to independent contractors after management concluded that such a conversion would generate economic savings for the company.” Dynamex, 4 Cal.5th 917, emphasis added.

There is simply no test for classification status that would not be triggered by this action. And indeed it was, in the lower courts invoking both Martinez v. Combs (2010), 49 Cal.4th 35 and the now iconic decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d 399.

That leaves us with the question – how to address the misclassification of a workforce while preserving the ability and prerogative of an individual worker as a sole proprietor to offer his or her skills to businesses that need such services on an ad hoc or project basis while not displacing work that would normally be done by an employee.

See also: Keys to California’s Consumer Privacy Act  

It is a question for the court – because the legislature could not resolve it – to clarify the comment:

“As explained, in light of its history and purpose, we conclude that the wage order’s suffer or permit to work definition must be interpreted broadly to treat as ’employees,’ and thereby provide the wage order’s protection to, all workers who would ordinarily be viewed as working in the hiring business.” Dynamex, 4 Cal. 5th at 916, emphasis in original.

This is the “B” part of the test adopted in Dynamex that is causing millions of dollars to be spent lobbying in Sacramento and may result in tens of millions being spent in a costly ballot measure in 2020.
This is also the core issue left unresolved by AB 5. What AB 5 does in its present state, however, is to accelerate the path to the Supreme Court for it to address the ABC test in a broader context than the facts presented in Dynamex. It can be argued that the legislature is doing little more than asking, ultimately, for the court to refine its application consistent with the public policy objectives articulated in that decision. However, the complex rules now in AB 5 will cause both employers and workers considerable grief in coming years.

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About the Author

Mark Webb is owner of Proposition 23 Advisors, a consulting firm specializing in workers’ compensation best practices and governance, risk and compliance (GRC) programs for businesses.

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