A ruling with potentially sweeping consequences for the so-called “gig economy” — wherein temporary positions are common and organizations contract with independent workers for short-term engagements — made it through the California Supreme Court on Monday.
The decision — Dynamex Operations W. v. Superior L.A. County — makes it much more difficult for companies to classify workers as independent contractors, versus employees.
Per the New York Times, the decision could eventually require companies like Uber, many of which are based in California, to follow minimum-wage and overtime laws and to pay workers’ compensation and unemployment insurance and payroll taxes, potentially upending their business models.
Beginning in 2004, delivery drivers for the nationwide package delivery company Dynamex Operations were classified as independent contractors. In 2005, the drivers, alleging that they had been misclassified as independent contractors, made claims related to working conditions, thus providing a chance for the courts to both examine the gig economy and re-examine the legal standards for evaluating employee versus independent contractor status.
In the landmark decision, the court embraced a more rigid test than the currently-existing looser standard for determining whether a worker is an employee or a contractor – the so-called “ABC test,” which is used in New Jersey and Massachusetts.
The ABC Test requires an employer establish three factors to show a worker is an independent contractor. The factors are:
1. That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work
2. That the worker performs work that is outside the usual course of the hiring entity’s business
3. That 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.
The California Supreme Court wrote: “It bears emphasis that in order to establish that a worker is an independent contractor under the ABC standard, the hiring entity is required to establish the existence of each of the three parts of the ABC standard.”
For example, the decision explained, “a store that hires an outside plumber to fix a leak, or an electrician to install a new line, could consider them contractors. But a clothing manufacturer that hires seamstresses who work at home to make dresses that the company will sell has hired them to perform work in its usual line of business and must pay them as employees.”
As the savvy adult industry professional knows, this question — employee versus independent contractor — is often raised, especially regarding performers. We received a special update from attorney Karen Tynan regarding the California Supreme Court’s decision.
Per Tynan, the ruling did not address issues related to payment of work expenses, workers’ compensation and unemployment benefits, which are covered by separate laws – however, Kevin Ruf, a lawyer for about 300 Dynamex drivers who will now be allowed to pursue their case as a class action, said the court’s rationale should help workers seeking employee status overall.
“If you are paying workers as independent contractors, there is a new evaluation for you,” Tynan wrote.
“Many workers previously classified as independent contractors must now be classified as employees. Further, this decision will likely embolden Plaintiffs’ attorneys who will take on many misclassification cases knowing that the standard has shifted. This is a time for companies to manage this risk and make sure that misclassification is not occurring,” Tynan continued.
