In 2018, the California Supreme Court issued a bombshell decision in Dynamex v. Superior Court, wherein the court adopted the so-called ABC test for independent contractor classification. This new and rigidly formulaic test displaced more flexible standards on which California businesses had relied for decades.
While much of the Dynamex commentary has focused on the impact for the so called “gig economy,” the reality is that Dynamex affects businesses of all shapes and sizes across industry lines. NFIB has heard from countless business owners—salons, marketing firms, gun shops, photographers, etc.—who are struggling to figure out what Dynamex means for them and how they can continue in business under the new rules and avoid lawsuits going forward. NFIB’s senior attorney Luke Wake recently presented to companies providing translation services for government, for health care providers, and for many other clients. As a result of Dynamex they are no longer able to work with independent contractors—regardless of whether the linguist offers services to hundreds of other companies. Dynamex says that you cannot work with an independent contractor if they are providing services essential to your business model. Even if a contractor is incorporated and is trying to establish itself as a truly independent business, Dynamex says that the hiring company must treat the worker as an employee—a designation that comes with a tremendous amount of red-tape, and greatly heightened regulatory costs that will be passed on to consumers.
It’s bad enough that the California Supreme Court radically changed the playing field for the small business community. But, to make matters worse, at least one California court has ruled that the Dynamex rules should apply retroactively. NFIB has asked the Ninth Circuit Federal Court of Appeals to limit the fall-out from the Dynamex decision in in Lawson v. Grubhub. But, the one thing that is clear is that Dynamex sets new ground rules going forward.
Other states have adopted independent contracting rules similar to what the California Supreme Court gave us in Dynamex—the so called “ABC test.” But that has always happened legislatively, not by judicial fiat. And while one would expect the Legislature to insist upon being the final word on public policy, it remains to be seen whether the California Legislature will do anything.
NFIB, and other industry groups, are urgently calling for legislative action; however, in the absence of legislation we’re all stuck with Dynamex. And that is bad news for many self-starters who want to retain the flexibility and the higher pay that have historically enjoyed as independent contractors. Moreover, there are many open questions still hanging—menacingly—over the heads of small business operators.
One issue, in particular, is going to require clarification—either from the Legislature or the courts. Dynamex says that a worker cannot be deemed an independent contractor if they are performing work of the sort performed by employees within the “usual course of business.” But the opinion gave precious little guidance as to what constitutes the “usual course of business.” Does this preclude a photographer from working with a makeup artist in a photoshoot? Does it preclude a magazine from treating a freelance photographer as a contractor? And is there liability for a retail shop renting out space to a florist?
The bottom line is that Dynamex is a very problematic decision. But the situation could be made better or worse depending on what happens going forward in the Legislature, or the courts. For now, many small business owners are caught in a lurch.