What’s the Real Story on Dynamex?

On April 30, the California Supreme Court issued a unanimous ruling in Dynamex Operations West, Inc.  v. Superior Court of Los Angeles that made it harder for companies to misclassify workers as independent contractors. In California, the test of employment status has been developed through caselaw over several decades. Dynamex built upon the earlier Court-established test in Borello which itself evolved with the standards developed in Martinez and Ayala. The court has steadily adapted the test to capture a true employment relationship as business models, such as the use of staffing agencies and contractors, have changed.

In the final weeks of the legislative session, the Chamber of Commerce and some tech companies are lobbying the legislature to suspend the ruling. The labor movement vehemently opposes any action to undermine this important decision. Such an action by the legislature would be unprecedented and harmful to workers across a variety of industries.

Why is Dynamex important?

Since the 1970s, entire industries have shifted from an employment model to an independent contractor model. Industries like trucking, courier, and construction have all been impacted and the result has been lower wages, increased insecurity for workers, and unfair competition for responsible contractors.

Calling workers independent contractors not only means no minimum wage or overtime, but it means all the risk is shifted from a company to an individual. He or she must purchase and maintain a vehicle, pay for transportation expenses, and purchase their own tools.  They are not entitled to a safe workplace or protected from sexual harassment or discrimination. That worker has no access to unemployment when the job ends, no workers compensation if injured on the job, and no right to organize to improve conditions.

Now we see the use of smartphone technology to accelerate this business model throughout what is known as the “gig economy.” Workers are hired and dispatched through apps to do everything from providing homecare to delivering packages, meals and electrical work. In many cases, these workers are doing the same work as traditional employees but without any of the rights or protections afforded to other workers.

How will Dynamex help?

While the Dynamex test includes many of the same factors as the Borello test, it is simpler and easier to comply with and enforce. It requires employers to prove that workers are properly classified as contractors by showing they are (1) free from employer control, (2) outside the regular scope of the business, and (3) independently established in that trade.

This will address the common practice in many industries of a company forcing an individual to act as an independent business while the company maintains the right to set rates, direct work, and impose discipline. It distinguishes carefully between a trucking company that has no employee drivers (misclassification) and a trucking company that contracts with a mechanic (legitimate contractor).

Because this test is clearer and easier to enforce, it will give millions of misclassified workers the chance to become employees. This will mean fewer workers will be forced to rely on the safety net when they are sick, laid off, or hurt at work. It will also significantly benefit the state. In the Dynamex case itself, the California Division of Labor and Enforcement Standards submitted a brief saying that misclassification costs the state $7 billion annually.

 Why is the corporate lobby fighting to suspend Dynamex?

 For decades, corporations have relied upon and profited from a business model of misclassification. In many cases, these arrangements were not legal under Borello but the multi-factored test was hard to enforce and easy to manipulate. These companies are understandably reluctant to convert workers to employees and pay the same costs as all other employers. Many of the same companies asking for “relief” from this decision have already been sued by their workers for misclassification that has cheated those workers out of pay.

The ask to legislatively “suspend” a unanimous court decision that has already been in effect for several months simply to protect the corporate bottom line is both unprecedented and inappropriate. These companies knowingly used a business model that has been extensively criticized and litigated for decades simply because it allowed them to cut costs on the back of workers. Most of the benefit they derived will never go to the workers who earned it.

What about industries that are not misclassifying and are using legitimate contractors?

Dynamex won’t impact a company or industry if they use legitimate independent contractors. If they are concerned that it will, that can be easily addressed not by suspending the law but by clarifying who falls outside its scope. That will certainly be addressed through labor-management discussions in 2019. But the fact that a worker is hired through an app should have no bearing on their employment status. That should not be a loophole to evade workers rights.

Why is it essential to preserve the ruling in Dynamex?

The rationale for the ruling in Dynamex is best set forth by Chief Justice Tani Cantil-Sakauye:

“Wage and hour statutes and wage orders were adopted in recognition of the fact that individual workers generally possess less bargaining power than a hiring business and that workers’ fundamental need to earn income for their families’ survival may lead them to accept work for substandard wages or working conditions. The basic objective of wage and hour legislation and wage orders is to ensure that such workers are provided at least the minimal wages and working conditions that are necessary to enable them to obtain a subsistence standard of living and to protect the workers’ health and welfare…

“California’s industry-wide wage orders are also clearly intended for the benefit of those law-abiding businesses that comply with the obligations imposed by the wage orders, ensuring that such responsible companies are not hurt by unfair competition from competitor businesses that utilize substandard employment practices.

“Finally, the minimum employment standards imposed by wage orders are also for the benefit of the public at large, because if the wage orders’ obligations are not fulfilled the public will often be left to assume responsibility for the ill effects to workers and their families resulting from substandard wages or unhealthy and unsafe working conditions.”

To protect workers who lack bargaining power in this unfair economy, to protect responsible businesses that follow the law, to protect taxpayers and the public good, we must preserve Dynamex as the law of the land in California.