Limiting the Damage of California’s Dynamex Decision

Date: January 18, 2019

Small businesses are still reeling from the California Supreme Court’s 2018 decision in Dynamex v. Superior Court, which announced a new test for determining whether a worker is an independent contractor or an employee. Dynamex came as a shock to small business owners who had relied on long established California case law in classifying workers as independent contractors. And now, nearly nine months after Dynamex pronounced its new ABC test, many businesses still struggle to legally classify workers. We continue to hear from small businesses from all sectors—photographers, salon owners, construction companies, businesses offering linguistic services, gun shop owners, etc. Indeed, the informational sessions that we’ve participated in have been very well attended, with many great questions.

We more fully explained the implications of the Dynamex decision here. But, as a refresher, to properly classify a worker as an “independent contractor” you must show that: “(A) 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; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.”

Whereas the previous standard allowed for a balancing of several considerations, the ABC test is rigidly formulaic—allowing zero flexibility. That’s a major problem for many small businesses, including entrepreneurs who want to maintain their independence. But, to add insult to injury, the plaintiff’s bar is now arguing that businesses should be held liable under this new standard even for independent contracting work performed prior to the Dynamex decision.

For this reason, NFIB Small Business Legal Center recently filed an amicus brief urging the Ninth Circuit Federal Court of Appeal to limit liability under Dynamex. Our amicus brief in Lawson v. Grubhub argues that the Dynamex test should not be imposed retroactively on businesses who had legitimately relied on prior case law. Indeed, it would be inherently unfair to hold someone accountable to a rule that didn’t exist at the time.

One of the most frustrating issues is that no other state has adopted an ABC test by judicial fiat. For example, Massachusetts had the worst independent contracting rules in the country prior to the Dynamex decision. But as much as NFIB opposed adoption of an especially inflexible ABC test in Massachusetts, at least it was the Legislature (i.e., not a court) making-up the rules. And while many states apply legislatively adopted ABC tests with a degree of flexibility, the California Supreme Court decided that Massachusetts’ version was the best public policy on the issue. We could not disagree more on what makes good public policy; however, the fact that the California Supreme Court arbitrarily chose to apply law from a foreign jurisdiction is especially disconcerting. And to the question of whether Dynamex should apply retroactively, we maintain that no one could have foreseen that the Court would have applied Massachusetts law here.

Meanwhile, we’re working in the courts to limit Dynamex in other ways. In our Grubhub brief we argue that Dynamex should only apply to wage and hour issues in California. And the good news is that one California Court of Appeal has held that Dynamex does not apply to other potential claims, which is good news for someone facing an EDD or workers compensation audit. Yet we must emphasize that, as a practical matter, businesses must comply with the most stringent applicable independent contracting test, which means Dynamex remains a huge problem for many.

Theoretically, the Legislature may step-in to reinstate the old rules, or to provide at least a little bit of flexibility or greater clarity. But in the absence of legislative action we’re stuck with Dynamex. Even so, there will be further cases testing the waters in the wake of Dynamex. In fact, it is absolutely necessary for either the Legislature or the courts to flesh-out the “B prong” more because the California Supreme Court gave precious little guidance as to what constitutes the “usual course of business.” The Court gave a few overly simplistic examples of arrangements that would pass or flunk its B test; however, this leaves many businesses scratching their heads as to whether or not they’re caught-up in this mess. So, rest assured, NFIB is working on this issue in the Legislature, and the Legal Center in the courts to address these pressing issues.

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