Is the “Gig Economy” Threatened by a CA Supreme Court Ruling?

The April 30, 2018 California Supreme Court case of Dynamex Operations West v. Superior Court is sending shock waves across the USA.  Although the holding only interpreted California law, some employment lawyers think it will ripple across the country.

In the lawsuit, a Dynamex delivery driver named Charles Lee claimed he and his fellow workers were misclassified as independent contractors. Attorneys for Mr. Lee argued that the court should abandon its prior standards worker classification standards in favor of a much stricter “A-B-C” test.  The court agreed.

The prior standard is a multi-factor test that focuses mainly on whether the employer has control in how the worker performs her tasks. It considers various other factors, including the worker’s skill, how the worker gets paid, and the nature of the employer’s business.

The “ABC” test presumes that a worker is an employee unless the employer can satisfy all three of these criteria:

(A)         The worker has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact;

(B)         Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

(C)         The worker is customarily engaged in an independently established trade, occupation, profession or business.

Here’s what Richard Meneghello of the employment law firm Fisher Phillips had to say May 1, 2018 on the firm’s Gig Economy Blog:

“My colleague Ashton Riley described it as the “contractor apocalypse.” As I said for an interview in the New York Times, “It’s a massive thing – definitely a game-changer that will force everyone to take a fresh look at the whole issue.” Yesterday the California Supreme Court issued its long-awaited decision in Dynamex Operations West, Inc. v. Superior Court, and, unfortunately, the wait wasn’t worth it. The state Supreme Court scrapped the flexible legal test used since 1989 to determine whether a worker was an independent contractor or employee and installed a rigid three-pronged test that will appear in the nightmares of your average gig economy business executives for the foreseeable future … The bottom line: it’s going to be a lot harder for some gig economy companies in California to withstand misclassification challenges. As you can see, this test is very difficult to overcome and could require many businesses to restructure the very nature of the way they do their work, especially in light of the B and C prongs.”

Employers in California (and in New Jersey and Massachusetts, where the test has been adopted) need to be evaluating their worker classification systems in light of the Dynamex

Holding.  Employers in other states would be wise to consult with their legal counsel to see if makes sense to change their systems as well.

Michael Oswald

Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.

© 2018 Michael S. Oswald





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