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California's Business Community Reacts to Dynamex

On April 30, 2018, the California Supreme Court upended the state's independent contractor market with its decision in Dynamex Operations West v. Superior Court. The Court's ruling changed the way the law will determine whether a worker is an employee or an independent contractor. The case discards the decades-old test of S. G. Borello & Sons, Inc. v. Department of Industrial Relations (Borello) and replaces it with a new "ABC Test." We initially discussed the difference between these cases in a May 2018 post.

While the decision itself is limited to California's Industrial Welfare Wage Orders it is still open as to how it will apply to other issues. This leaves businesses of all kinds wondering what the future holds for their independent contractors. With the uncertainty and potential change ahead, it is no surprise that some businesses that could be strongly impacted are aiming to take action.

Initially, some of the leading "gig economy" business, such as Uber, have quickly begun lobbying California lawmakers to protect them from the new ruling. Ridesharing and delivery services such as Uber and Postmates are at the heart of the new gig economy, which relies seemingly entirely on an independent contractor model. The new ABC Test could bring that to an end in California. No small problem for these companies operating in one of the largest economies in the world. This could also be an issue to watch heading into the November elections, particularly with these companies urging outgoing Governor Brown, or the new incoming Governor, to take action.

The implications are already beginning to take hold against these companies. Shortly after Dynamex, San Francisco issued subpoenas to Uber and Lyft requiring them to prove their drivers satisfy the new independent contractor requirements. New lawsuits against these companies have also popped up since Dynamex.

In the real estate field, there is also some concern about the impact Dynamex could have on the industry. Currently, many real estate agents are treated as independent contractors. However, they are also required to be supervised and may struggle to meet all three prongs of the ABC Test. It has been suggested that agents will need to argue for a special exception (something truckers are looking to do).

Health care is another industry that is keeping a wary and watchful eye on Dynamex and its progression. Some medical groups initially hire practitioners as independent contractors. In some cases, these individuals work alongside employees. While this has been noted as tricky under the prior law, it appears to clearly violate Dynamex. This leaves the healthcare industry as another that may see large changes due to the ABC Test.

Understanding the impact of Dynamex on a business using independent contractors is challenging. Good employment and business lawyers can help.

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