Executive Summary
The California Assembly has introduced a bill to “codify” the “ABC” test recently established in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 and “clarify its application.”
Analysis
On December 3, 2018, Democratic Assembly Member Gonzalez introduced the outline of a bill that would codify and clarify the California Supreme Court’s recent decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903. In full, the bill states as follows:
Existing law, as established in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), creates a presumption that a worker who performs services for a hirer is an employee. Existing law requires a 3-part test, commonly known as the “ABC” test, to establish that a worker is an independent contractor.
This bill would state the intent of the Legislature to include provisions within this bill would codify the decision in the Dynamex case and clarify its application.
…
SECTION 1. The Legislature finds and declares all of the following:
(a) On April 30, 2018, the California Supreme Court issued a unanimous decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, (2018) 4 Cal.5th 903.
(b) In its decision, the Court cited the harm to misclassified workers who lose significant workplace protections, the unfairness to employers who must compete with companies that misclassify, and the loss to the state of needed revenue from companies that use misclassification to avoid obligations such as payment of payroll taxes, payment of premiums for workers compensation, Social Security, unemployment, and disability insurance.
(c) The misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality.
SEC. 2. Section 2750.3 is added to the Labor Code, to read:
2750.3. (a) It is the intent of the Legislature in enacting this section to include provisions that would codify the decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903, and would clarify the decision’s application in state law.
Looking Forward
At present, the bill does little more than state the intentions of the legislature to codify the Dynamex “ABC” test. In Dynamex, the California Supreme Court ruled that the ABC test was the appropriate standard for determining whether a worker was considered an employee or an independent contractor. Going against nearly three decades of precedent, Dynamex found that a worker is considered to be an employee unless the alleged employer can prove: (A) the worker was not under its direction and control in the performance of the work in question; (B) the worker’s business was not in the hiring company’s usual course of business; and (C) the worker was customarily engaged in an independent trade or business.
Unfortunately, the foundation upon which this bill has been put forward–including statements that “[t]he misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise of income inequality”–indicates that this bill will be a vehicle to attack certain employers.
With the political environment in the State during and since the Fight for 15, this bill and similar actions are simply not a surprise. To the extent your franchise business has not taken the time to do a Dynamex analysis of your employment relationships, now is the time as this issue is not going away anytime soon.
This article was originally published on the California Franchise Network.
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Thomas O’Connell – Tom O’Connell is a Shareholder at Buchalter APC, where he serves as Chair of the firm’s Franchise Law Practice and Chair of Litigation for the firm’s San Diego office.
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