Employee or Contractor? The Dynamex Decision: Another Disrupter in California's Economy

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April 26, 2019

On April 30, 2018, The California Supreme Court issued a landmark decision in the case of Dynamex Operations West vs. Superior Court of Los Angeles.

An important takeaway from this landmark case is the transition in how the California Supreme Court views workers’ rights. With this decision we are seeing the courts trend in favor of the employee/ individual and with this decision the court has greatly changed how the California economy will look in the future.

While the Dynamex Decision will greatly impact the gig economy, the reality is that every industry in California will be impacted, especially small businesses. When a worker is classified as an employee, the employer is held responsible for payroll taxes, social security and unemployment insurance tax, state employment tax, worker’s compensation insurance, and being compliant with all the state and federal hours, wages, and working conditions. Meaning that reclassifying independent contractors as employees will greatly raise the cost of doing business in California.

In the Dynamex case the Court rejected the Borello test, which had previously been the test for determining an employee or independent contractor. It has been replaced by the ABC test. In order to be classified as an independent contractor all three conditions of the ABC test must be met without exception.

(A) 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
(B) The worker performs work that is outside the usual course of the hiring entity’s business; and
(C) 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.
In addition to cost of doing business, employers who are not compliant with the ABC test from the Dynamex Decision are now vulnerable to face lawsuits, back taxes, fines, and more. If you own or operate a business that uses independent contractors, you need to carefully evaluate this moving forward in doing business and determine if you satisfy the new test. If you can’t pass all three components you are not compliant and may be at risk.

Debra Rosen, President & CEO
drosen@sdbusinesschamber.com, (858) 487 1767